UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 X
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For the Fiscal Year Ended December 31, 1998
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file numbers 0-23232/1-14248
Arch Communications Group, Inc.
(Exact name of Registrant as specified in its Charter)
DELAWARE 31-1358569
(State of incorporation) (I.R.S. Employer Identification No.)
1800 West Park Drive, Suite 250
Westborough, Massachusetts 01581
(address of principal executive offices) (Zip Code)
(508) 870-6700
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
SECURITIES EXCHANGE ACT OF 1934:
10 7/8% Senior Discount Notes due 2008 American Stock Exchange
(Title of Class) (Name of exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Common Stock Par Value $.01 Per Share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 10, 1999 was approximately $19,620,000.
The number of shares of Registrant's Common Stock outstanding on March 10, 1999
was 21,215,583.
Portions of Registrant's Definitive Proxy Statement for the 1999 Annual Meeting
of Stockholders of the Registrant to be held on May 18, 1999, are incorporated
by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Arch Communications Group, Inc. ("Arch or the "Company") is a leading
provider of wireless messaging services, primarily paging services, and is the
third largest paging company in the United States (based on units in service).
Arch had 4.3 million units in service at December 31, 1998. Arch operates in 41
states and more than 180 of the 200 largest markets in the United States. Arch
offers local, regional and nationwide paging services employing digital networks
covering approximately 85% of the United States population. Arch offers four
types of paging services through its networks: digital display, alphanumeric
display, tone-only and tone-plus-voice. Arch also offers enhanced and
complementary services, including voice mail, personalized greeting, message
storage and retrieval, pager loss protection and pager maintenance.
Arch has achieved significant growth in units in service through a
combination of internal growth and acquisitions. From January 1, 1996 through
December 31, 1998, Arch's total number of units in service grew at a compound
rate on an annualized basis of 28.7%. For the same period on an annualized
basis, Arch's compound rate of internal units in service growth (excluding units
added through acquisitions) was 23.8%. From commencement of operations in
September 1986, Arch has completed 33 acquisitions representing an aggregate of
1.7 million units in service at the time of purchase.
The following table sets forth certain information regarding the approximate
number of units in service with Arch subscribers and net increases in number of
units in service through internal growth and acquisitions during the periods
indicated:
<TABLE>
<CAPTION>
Units in Service Net Increase in Increase in Units Units in
at Beginning of Units through through Service at End
Year Ended August 31, Period Internal Growth(1) Acquisitions(2) of Period
- ------------------------------ ------ ---------------- ------------ ---------
<S> <C> <C> <C> <C>
1987................... 4,000 3,000 12,000 19,000
1988................... 19,000 8,000 3,000 30,000
1989................... 30,000 14,000 34,000 78,000
1990................... 78,000 20,000 4,000 102,000
1991................... 102,000 24,000 1,000 127,000
1992................... 127,000 33,000 -- 160,000
1993................... 160,000 70,000 24,000 254,000
1994................... 254,000 138,000 18,000 410,000
Four Months Ended December 31,
- ------------------------------
1994................... 410,000 64,000 64,000 538,000
Year Ended December 31,
- ------------------------------
1995................... 538,000 366,000 1,102,000 2,006,000
1996................... 2,006,000 815,000 474,000 3,295,000
1997................... 3,295,000 595,000 -- 3,890,000
1998................... 3,890,000 386,000 -- 4,276,000
- ------------------------------
<FN>
(1) Includes internal growth in acquired paging businesses after their acquisition by Arch. Increases in
units through internal growth are net of subscriber cancellations during each applicable period.
(2) Based on units in service of the acquired paging business at the time of their acquisition by Arch.
</FN>
</TABLE>
PENDING MOBILEMEDIA MERGER
On August 18, 1998, the Company entered into an Agreement and Plan of Merger
(as amended as of September 3, 1998, December 1, 1998 and February 8, 1999, the
"MobileMedia Merger Agreement") providing for a merger (the "MobileMedia
Merger") of MobileMedia Communications, Inc. ("MobileMedia") with and into a
subsidiary of Arch. The MobileMedia Merger is part of MobileMedia's Plan of
Reorganization to emerge from Chapter 11 bankruptcy (as amended, the
"Reorganization Plan"). Arch's stockholders approved the MobileMedia Merger on
January 26, 1999. On February 5, 1999, the Federal Communications Commission
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(the "FCC") released an order approving the transfer of MobileMedia's FCC
licenses to Arch in connection with the MobileMedia Merger, subject to approval
and confirmation of the Reorganization Plan. The order granting the transfer
became a final order, no longer subject to reconsideration or judicial review,
on March 7, 1999. Consummation of the MobileMedia Merger and the associated debt
and equity financings (described below) (collectively, the "MobileMedia
Transactions") is subject to the confirmation of the Reorganization Plan by the
U.S. Bankruptcy Court for the District of Delaware, the occurrence or waiver of
the conditions to the consummation of the Reorganization Plan, performance by
third parties of their contractual obligations, the availability of sufficient
financing and other conditions. There can be no assurance the MobileMedia Merger
will be consummated.
Pursuant to the MobileMedia Merger, Arch will: (i) issue certain stock and
warrants; (ii) pay $479.0 million in cash to certain creditors of MobileMedia;
(iii) pay approximately $85.0 million of administrative expenses, amounts to be
outstanding at the Effective Time under the DIP Credit Agreement and
transactional and related costs; (iv) raise $217.0 million in cash through
rights offerings of its common stock (the "Rights Offering"); and (v) cause its
wholly owned subsidiary, Arch Communications, Inc. ("ACI") and ACI's principal
operating subsidiary, Arch Paging Inc. ("API"), to borrow a total of
approximately $347.0 million. After consummation of the MobileMedia
Transactions, which is expected to occur during the second quarter of 1999,
MobileMedia will become a wholly owned subsidiary of API.
Following the consummation of the MobileMedia Merger, Arch will be the second
largest paging operator in the United States as measured by units in service and
net revenues (total revenues less cost of products sold).
PAGING INDUSTRY OVERVIEW
Paging is a method of wireless communication which uses an assigned radio
frequency to contact a paging subscriber anywhere within a designated service
area. A subscriber carries a pager which receives messages by the transmission
of a one-way radio signal. To contact a subscriber, a message is usually sent by
placing a telephone call to the subscriber's designated telephone number. The
telephone call is received by an electronic paging switch which generates a
signal that is sent to radio transmitters in the service area. Depending upon
the topography of the service area, the operating radius of a radio transmitter
typically ranges from three to 20 miles. The transmitters broadcast a signal
that is received by the pager a subscriber carries, which alerts the subscriber
by a tone or vibration that there is a voice, tone, digital or alphanumeric
message.
The paging industry has been in existence since 1969 when the FCC allocated a
group of radio frequencies for use in providing one-way and two-way types of
mobile communications services. Industry sources estimate that, the number of
units in service in the United States grew at an annual rate of approximately
25% between 1992 and 1997 although since 1997, growth has slowed considerably.
The paging industry has undergone substantial consolidation over the past ten
years, and Arch believes that the top five paging carriers represent
approximately 50% of the units in service. Nonetheless, Arch believes that the
paging industry remains fragmented, with more than 300 licensed carriers in the
United States, and will continue to undergo consolidation.
Arch believes that paging is the most cost-effective form of mobile wireless
communications. Paging has an advantage over conventional telephone service
because a pager's reception is not restricted to a single location, and over a
cellular telephone or broadband PCS handset because a pager is smaller, has a
longer battery life and, most importantly, because pagers and air time required
to transmit an average message cost less than equipment and air time for
cellular telephones or broadband PCS handsets. Paging subscribers generally pay
a flat monthly service fee for pager services, regardless of the number of
messages, unlike cellular telephone or broadband PCS subscribers, whose bills
typically have a significant variable usage component. For these reasons, some
cellular subscribers use a pager in conjunction with their cellular telephone to
screen incoming calls and thus lower the expense of cellular telephone service,
and to a lesser extent, some broadband PCS subscribers use a pager in
conjunction with their broadband PCS handsets, which often incorporate messaging
functions, but have a much shorter battery life.
The paging industry has benefited from technological advances resulting from
research and development conducted by vendors of pagers and transmission
equipment. Such advances include microcircuitry, liquid crystal display
technology and standard digital encoding formats, which have enhanced the
capability and capacity of paging services while lowering equipment and air time
costs. Technological improvements have enabled Arch to provide better quality
services at lower prices to its subscribers and have generally contributed to
growth in the market for paging services.
The paging industry has traditionally distributed its services through direct
marketing and sales activities. In recent years, additional channels of
distribution have evolved, including: (i) carrier-operated stores; (ii)
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resellers, who purchase paging services on a wholesale basis from carriers and
resell those services on a retail basis to their own customers; (iii) agents who
solicit customers for carriers and are compensated on a commission basis; (iv)
retail outlets that often sell a variety of merchandise, including pagers and
other telecommunications equipment; and (v) most recently, the Internet. While
most paging subscribers traditionally have been business users, industry
observers believe that pager use among retail consumers has increased
significantly in recent years. In addition, paging subscribers have increasingly
chosen to purchase rather than lease their pagers. These trends are expected to
continue.
BUSINESS STRATEGY
Arch's strategic objective is to strengthen its position as one of the
leading nationwide paging companies in the United States. Arch believes that
larger, multi-market paging companies enjoy a number of competitive advantages,
including: (i) operating efficiencies resulting from more intensive utilization
of existing paging systems; (ii) economies of scale in purchasing and
administration; (iii) broader geographic coverage of paging systems; (iv)
greater access to capital markets and lower costs of capital; (v) the ability to
obtain additional radio spectrum; (vi) the ability to offer high-quality
services at competitive prices; and (vii) enhanced ability to attract and retain
management personnel. Arch believes that the current size and scope of its
operations afford it many of these advantages, and that it has the scope and
presence to effectively compete on a national level. In addition, Arch believes
that the paging industry will undergo further consolidation, and Arch expects to
participate in such consolidation.
Arch's operating objectives are to increase its Adjusted EBITDA (as defined
in Item 6 -- "Selected Consolidated Financial and Operating Data"), deploy its
capital efficiently, reduce its financial leverage and expand its customer
relationships. Arch pursues the following strategies to achieve its operating
objectives:
Low-Cost Operating Structure. Arch has selected a low-cost operating
strategy as its principal competitive tactic. Arch believes that a low-cost
operating structure, compared to the other two fundamental competitive
tactics in the paging industry (differentiated premium pricing and niche
positioning), maximizes its flexibility to offer competitive prices while
still achieving target margins and Adjusted EBITDA. Arch maintains a low-cost
operating structure through a combination of (i) the consolidation of certain
operating functions, including centralized purchases from key vendors, to
achieve economies of scale, and (ii) the installation of technologically
advanced and reliable transmission systems. In June 1998, the Arch Board
approved a divisional reorganization (the "Divisional Reorganization"), as
part of which Arch has consolidated its seven operating divisions into four
operating divisions and is in the process of consolidating certain regional
administrative support functions, resulting in various operating
efficiencies. The Divisional Reorganization, once fully implemented, is
expected to result in annual cost savings of approximately $15.0 million
(approximately $11.5 million for salary and employee benefits and $3.5
million for lease obligations).
Efficient Capital Deployment. Arch's principal financial objective is to
reduce financial leverage by reducing capital requirements and increasing
Adjusted EBITDA. To reduce capital expenditures, Arch has implemented a
company-wide focus on the sale, rather than lease, of pagers, since
subscriber-owned units require a lower level of capital investment than
Arch-owned units. As a result of these efforts, the number of
subscriber-owned units, as a percentage of net new units in service,
increased from 65.2% in the year ended December 31, 1997 to 69.7% in the year
ended December 31, 1998. In addition, Arch has modified its incentive
compensation programs for line managers so that bonuses are based, in part,
on capital efficiency.
Fast Follower on N-PCS Opportunities. Consistent with its low-cost
provider competitive tactic, Arch has focused its capital and marketing
resources on one-way paging and other enhanced services rather than N-PCS
services. However, Arch recognizes the potential benefits to current and
prospective customers and the associated market opportunities from certain
N-PCS applications, such as two-way text and voice messaging services. Arch
has taken steps to position itself to participate in new and emerging N-PCS
services and applications, including marketing N-PCS services as a reseller
and its 49.9% equity interest in Benbow PCS Ventures, Inc. ("Benbow").
Capitalize on Revenue Enhancement Opportunities. Arch believes there are a
number of new revenue opportunities associated with its 4.3 million units in
service, including increasing the proportion of subscribers utilizing
alphanumeric display services, which generate higher revenue, and selling
value-added, non-facilities-based enhanced services such as voicemail, resale
of long-distance service and fax storage and retrieval.
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PAGING OPERATIONS
Arch currently provides four basic types of paging services: digital display,
alphanumeric display, tone-only and tone-plus-voice. Depending upon the type of
pager used, a subscriber may receive information displayed or broadcast by the
pager or may receive a signal from the pager indicating that the subscriber
should call a prearranged number or a company operator to retrieve a message.
A digital display pager permits a caller to transmit to the subscriber a
numeric message that may consist of a telephone number, an account number or
coded information, and has the capability to store several such numeric messages
in memory for later recall by the subscriber. An alphanumeric display pager
allows subscribers to receive and store messages consisting of both numbers and
letters. A tone-only pager notifies the subscriber that a call has been received
by emitting an audible beeping sound or vibration. A tone-plus-voice pager emits
a beeping sound followed by a brief voice message. Arch provides digital
display, alphanumeric display and tone-only service in all of its markets and
tone-plus-voice service in only a few markets.
Digital display paging service, which was introduced by the paging industry
nearly 20 years ago, has in recent years grown at a faster rate than tone-only
or tone-plus-voice service and currently represents a majority of all units in
service. The growth of alphanumeric display service, which was introduced in the
mid-1980s, has been constrained by its difficult data-input and specialized
equipment requirements and its relatively high use of system capacity during
transmission. The following table summarizes the types of Arch's units in
service at the dates indicated:
December 31,
---------------------------------------------------
1996 1997 1998
--------------- --------------- ---------------
Units % Units % Units %
Digital display.......... 2,796,000 85% 3,284,000 85% 3,586,000 84%
Alphanumeric display..... 395,000 12 524,000 13 621,000 14
Tone-only................ 54,000 2 43,000 1 35,000 1
Tone-plus-voice.......... 50,000 1 39,000 1 34,000 1
========= ==== ========= ==== ========= ====
Total............... 3,295,000 100% 3,890,000 100% 4,276,000 100%
========= ==== ========= ==== ========= ====
Arch provides paging service to subscribers for a monthly fee. Subscribers
either lease the pager from Arch for an additional fixed monthly fee or they own
the pager, having purchased it either from Arch or from another vendor. The
monthly service fee is generally based upon the type of service provided, the
geographic area covered, the number of pagers provided to the customer and the
period of the subscriber's commitment. Subscriber-owned pagers provide a more
rapid recovery of Arch's capital investment than pagers owned and maintained by
Arch, but may generate less recurring revenue. Arch also sells pagers to
third-party resellers who lease or resell pagers to their own subscribers and
resell Arch's paging services under marketing agreements. The following table
summarizes the number of Arch-owned and leased, subscriber-owned and
reseller-owned units in service at the dates indicated:
December 31,
---------------------------------------------------
1996 1997 1998
--------------- --------------- ---------------
Units % Units % Units %
Arch-owned and leased.... 1,533,000 47% 1,740,000 45% 1,857,000 43%
Subscriber-owned......... 914,000 28 1,087,000 28 1,135,000 27
Reseller-owned........... 848,000 25 1,063,000 27 1,284,000 30
========= ==== ========= ==== ========= ====
Total............... 3,295,000 100% 3,890,000 100% 4,276,000 100%
========= ==== ========= ==== ========= ====
Arch provides enhancements and ancillary services such as voice mail,
personalized greetings, message storage and retrieval, pager loss protection and
pager maintenance services. Voice mail allows a caller to leave a recorded
message that is stored in Arch's computerized message retrieval center. When a
message is left, the subscriber can be automatically alerted through the
subscriber's pager and can retrieve the stored message by calling Arch's paging
terminal. Personalized greetings allow the subscriber to record a message to
greet callers who reach the subscriber's pager or voice mail box. Message
storage and retrieval allows a subscriber who leaves Arch's service area to
retrieve calls that arrived during the subscriber's absence from the service
area. Pager loss protection allows subscribers who lease pagers to limit their
costs of replacement upon loss or destruction of a pager. Pager maintenance
services are offered to subscribers who own their own equipment. Arch is also in
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the process of test marketing various non-facilities-based value-added services
that can be integrated with existing paging services. These include, among other
services, voicemail, resale of long distance service and fax storage and
retrieval.
INVESTMENTS IN NARROWBAND PCS LICENSES
Arch has taken the following steps to position itself to participate in new
and emerging N-PCS services and applications.
Benbow PCS Ventures, Inc. In connection with Arch's May 1996 acquisition of
Westlink Holdings, Inc. ("Westlink"), Arch acquired a 49.9% equity interest in
Benbow, which holds directly or indirectly exclusive rights to a 50 kHz
outbound/12.5 kHz inbound N-PCS license in each of the five regions of the
United States. Benbow is a "designated entity" (a small, minority-controlled or
female-controlled business) under FCC rules and is entitled to discounts and
installment payment schedules in the payment of its N-PCS licenses. Arch has the
right to designate one of Benbow's three directors and has veto rights with
respect to specified major business decisions by Benbow. Arch is obligated, to
the extent such funds are not available to Benbow from other sources and subject
to the approval of Arch's designee on Benbow's Board of Directors, to advance to
Benbow sufficient funds to service debt obligations incurred by Benbow in
connection with the acquisition of its N-PCS licenses and to finance
construction of an N-PCS system. The total purchase price for Benbow's licenses,
net of the discounts, is $42.5 million. Arch estimates that the total cost to
Benbow of servicing its license-related debt obligations and constructing such
N-PCS system will be approximately $100.0 million over the next five years.
Arch's advances to Benbow are secured by Benbow's assets, bear interest at an
interest rate equal to that paid by Arch on its senior debt, are due on demand
and must be repaid prior to any distribution of profits by Benbow. With certain
exceptions, Arch has agreed not to exercise its right to demand repayment of
such advances prior to the occurrence of a default. As of December 31, 1998,
Arch had advanced approximately $22.9 million to Benbow. Arch is currently
evaluating the prospects for Benbow's N-PCS system and services and the
likelihood of Benbow generating sufficient revenue to repay the advances from
Arch (or other sources) that would be required in order to fund Benbow's
remaining N-PCS license obligations and the construction of Benbow's N-PCS
system. Arch is unable to predict whether Benbow will obtain sufficient
financing to fund Benbow's remaining N-PCS license obligations and the
construction of Benbow's N-PCS system or whether Benbow will be able to repay
Arch's existing advances or any future advances from Arch or other sources.
Pursuant to a five-year agreement with Benbow expiring on October 1, 2000,
Arch provides, subject to Benbow's ultimate control, management services and is
paid a management fee and is reimbursed for its expenses. Arch also has a right
of first refusal to provide Benbow with design, engineering and construction
services for its N-PCS system as well as to lease certain equipment to Benbow
for use in connection with such system. Arch has a right of first refusal with
respect to any transfer of shares held by Ms. June Walsh, who holds the
remaining 50.1% equity interest in Benbow, and Ms. Walsh has the right to
require Arch, commencing January 23, 2000 (or sooner under certain
circumstances), to repurchase (subject to prior FCC approval) her Benbow shares
for an amount equal to the greater of (i) an amount between $3.5 million and
$5.0 million, depending on the timing and circumstances under which Ms. Walsh
exercises her put option, and (ii) the fair market value of her shares (as
determined by arbitration absent agreement of the parties). If Arch exercises
its right of first refusal or Ms. Walsh exercises her put option, Benbow could
lose some of the benefits of the discounts and installment payment schedules for
its FCC payments unless another "designated entity" under FCC rules acquired
control of Benbow. See Note 1 of Notes to Arch's Consolidated Financial
Statements included elsewhere herein.
On June 29, 1998, Benbow acquired the outstanding stock of Page Call, Inc.
("Page Call") by issuing to Page Call's former stockholders preferred stock and
a promissory note in the aggregate face amount of $17.2 million with a 12%
annual return. At the time of the closing, Benbow entered into a five-year
consulting agreement with one of Page Call's stockholders requiring consulting
payments in the aggregate amount of $911,000. Benbow's preferred stock and
promissory note are exchangeable for Arch Common Stock (i) at any time at the
option of the holders thereof, at an exchange price equal to the higher of (A)
$13.00 per share or (B) the market price of Arch's Common Stock, (ii)
mandatorily on April 8, 2000, at the then prevailing market price of Arch Common
Stock, or (iii) automatically at an exchange price of $13.00 per share, if the
market price of Arch Common Stock equals or exceeds $13.00 for 20 consecutive
trading days. Arch is permitted to require Benbow to redeem its preferred stock
and promissory note at any time for cash. Arch entered into guarantees (payable
in Arch's Common Stock or cash, at Arch's election) of all obligations of Benbow
under the Benbow preferred stock, promissory note and consulting agreement
described above. Benbow's redemption of its preferred stock and promissory note
for cash, or Arch's payment of cash pursuant to its guarantees of Benbow's
preferred stock and promissory note, would be subject to the availability of
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capital and any restrictions contained in applicable debt instruments and under
the Delaware General Corporation Law ("DGCL") (which currently would not permit
any such cash redemptions or payments). If Arch issues Arch Common Stock or pays
cash pursuant to its guarantees, Arch will receive from Benbow a promissory note
and non-voting, non-convertible preferred stock of Benbow with an annual yield
of 14.5% payable upon an acquisition of Benbow or earlier to the extent that
available cash and applicable law permit. Page Call's stockholders received
customary registration rights with respect to any shares of Arch's Common Stock
issued in exchange for Benbow's preferred stock and promissory note or pursuant
to Arch's guarantees thereof.
CONXUS Communications, Inc. Arch currently holds an equity interest in CONXUS
Communications, Inc. ("CONXUS"), formerly known as PCS Development Corporation,
which holds exclusive rights to a 50 kHz outbound/50 kHz inbound two-way
messaging license throughout the United States. CONXUS, like Benbow, is a
"designated entity" under FCC rules and is entitled to discounts and installment
payment schedules.
Each stockholder of CONXUS is entitled to purchase services from CONXUS at
"most favored customer" rates, based on like services. CONXUS and Arch have
agreed to negotiate in good faith to enter into mutually acceptable
intercarrier, network access and similar agreements. If Arch wishes to purchase
N-PCS services of the kind offered by CONXUS, Arch has agreed to contract
exclusively with CONXUS for such services so long as such services are
competitive in price and quality with comparable services offered by others.
Arch is currently authorized to act as a reseller of voice messaging services
through CONXUS pursuant to an agreement renewable from year to year unless
terminated by either party at least 90 days prior to December 31 of any year.
SUBSCRIBERS AND MARKETING
Arch's paging accounts are generally businesses with employees who travel
frequently but must be immediately accessible to their offices or customers.
Arch's subscribers include proprietors of small businesses, professionals,
management and medical personnel, field sales personnel and service forces,
members of the construction industry and trades, and real estate brokers and
developers. Arch believes that pager use among retail consumers will increase
significantly in the future, although consumers do not currently account for a
substantial portion of Arch's subscriber base.
Although today Arch operates in more than 180 of the 200 largest U.S.
markets, Arch historically has focused on medium-sized and small market areas
with lower rates of pager penetration and attractive demographics. Arch believes
that such markets will continue to offer significant opportunities for growth,
and that its national scope and presence will also provide Arch with growth
opportunities in larger markets.
Arch markets its paging services through a direct marketing and sales
organization which, as of December 31, 1998, operated approximately 175 retail
stores. Arch also markets its paging services indirectly through independent
resellers, agents and retailers. Arch typically offers resellers paging services
in large quantities at wholesale rates that are lower than retail rates, and
resellers offer the services to end-users at a markup. Arch's costs of
administering and billing resellers are lower than the costs of direct end-users
on a per pager basis.
Arch also acts as a reseller of other paging carriers' services when existing
or potential Arch customers have travel patterns that require paging service
beyond the coverage of Arch's own networks.
In May 1997, Arch established a single national identity, Arch Paging, for
its paging services which previously had been marketed under various trademarks.
As part of this branding initiative, Arch adopted a new corporate logo, a
corporate-wide positioning strategy tied to customer service delivery, and
launched its Internet Web site at www.arch.com. Arch believes that its unified
branding identity will give the Arch name national exposure for the first time
and result in significant economic leverage in its marketing and communications
efforts.
COMPETITION
The paging industry is highly competitive with price being the primary means
of differentiation among providers of numeric display paging services. Companies
in the industry also compete on the basis of coverage area offered to
subscribers, available services offered in addition to basic numeric or tone
paging, transmission quality, system reliability and customer service.
Arch competes by maintaining competitive pricing of its products and service
offerings, by providing high-quality, reliable transmission networks and by
furnishing subscribers a superior level of customer service. Several hundred
licensed paging companies provide only local basic numeric or tone paging
service. Compared to these companies, Arch offers wireless messaging services on
a local, regional and nationwide basis. In addition, Arch offers enhanced
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services such as alphanumeric paging, voice mail and voice mail notifications,
news, sports, weather reports and stock quotes.
Arch competes with one or more competitors in all markets in which they
operate. Although some of Arch's competitors are small, privately owned
companies serving one market area, others are large diversified
telecommunications companies serving numerous markets. Some of Arch's
competitors possess financial, technical and other resources greater than those
of Arch. Major paging carriers that currently compete in one or more of Arch's
markets include PageNet, Metrocall, and AirTouch Communications, Inc.
As paging services become increasingly interactive, and as two-way services
become increasingly competitive, the scope of competition for communications
service customers in Arch's markets may broaden. For example, the FCC has
created potential sources of competition by auctioning new spectrum for wireless
communications services and local multipoint distribution service and holding an
auction in the 220-222 MHz service. Further, the FCC has announced plans to
auction licenses in the general wireless communications services, a service
created from spectrum reallocated from federal government use in 1995. Moreover,
entities offering service on wireless two-way communications technology,
including cellular, broadband PCS and specialized mobile radio services, as well
as mobile satellite service providers, also compete with the paging services
that Arch provides.
SOURCES OF EQUIPMENT
Arch does not manufacture any of the pagers or other equipment used in its
paging operations. The equipment used in Arch's paging operations is generally
available for purchase from multiple sources. Arch centralizes price and
quantity negotiations for all of its operating subsidiaries in order to achieve
cost savings from volume purchases. Arch buys pagers primarily from Motorola,
Inc. ("Motorola") and NEC America Inc. ("NEC") and purchases terminals and
transmitters primarily from Glenayre Electronics, Inc. ("Glenayre") and
Motorola. Arch anticipates that equipment and pagers will continue to be
available in the foreseeable future, consistent with normal manufacturing and
delivery lead times.
Because of the high degree of compatibility among different models of
transmitters, computers and other paging equipment manufactured by suppliers,
Arch is able to design its systems without being dependent upon any single
source of such equipment. Arch routinely evaluates new developments in paging
technology in connection with the design and enhancement of its paging systems
and selection of products to be offered to subscribers. Arch believes that its
paging system equipment is among the most technologically sophisticated in the
paging industry.
REGULATION
Paging operations and the construction, modification, ownership and
acquisition of paging systems are subject to extensive regulation by the FCC
under the Communications Act of 1934, as amended (the "Communications Act") and,
to a much more limited extent, by public utility or public service commissions
in certain states. The following description does not purport to be a complete
discussion of all present and proposed legislation and regulations relating to
Arch's paging operations.
FEDERAL REGULATION
Regulatory Classification.
Paging companies historically have been subject to different federal
regulatory requirements depending upon whether they were providing service as a
Radio Common Carrier ("RCC"), a Private Carrier Paging Operator ("PCP") or as a
reseller. Arch's paging operations encompass RCC, PCP and resale operations.
However, federal legislation enacted in 1993 required the FCC to reduce the
disparities in the regulatory treatment of similar mobile services (such as RCC
and PCP services), and the FCC has taken, and continues to take, actions to
implement this legislation. Under the new regulatory structure, all of Arch's
paging services are classified as CMRS. As a CMRS provider, Arch is regulated as
a common carrier, except that the FCC has exempted paging services, which have
been found to be highly competitive, from some typical common carrier
regulations, such as tariff filing and resale requirements.
The classification of Arch's paging operations as CMRS affects the level of
permissible foreign ownership, as discussed below, and the nature and extent of
the state regulation to which both may be subject. In addition, the FCC now is
required to resolve competing requests for CMRS spectrum by conducting auctions,
which may have the effect of increasing the costs of acquiring additional
spectrum in markets in which Arch operates. Also, Arch is obligated to pay
certain regulatory fees in connection with its paging operations.
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<PAGE>
FCC Regulatory Approvals and Authorizations
The Communications Act requires radio licensees such as Arch to obtain prior
approval from the FCC for the assignment or transfer of control of any
construction permit or station license or authorization or any rights
thereunder. This statutory requirement attaches to acquisitions of other paging
companies (or other radio licensees) by Arch as well as transfers of a
controlling interest in any of Arch's licenses, construction permits or any
rights thereunder. To date, the FCC has approved each assignment and transfer of
control for which Arch has sought approval. Although there can be no assurance
that any future requests for approval of transfers of control and/or assignments
of license will be acted upon in a timely manner by the FCC, or that the FCC
will grant the approval requested, Arch does not know of any reason that any
such applications will not be approved or granted.
Effective April 2, 1998, the FCC's Wireless Telecommunications Bureau, which
directly regulates Arch's paging activities, stopped enforcing its filing
requirements with respect to pro forma assignments and transfers of control of
certain wireless authorizations, such as Arch's RCC and PCP licenses. Pursuant
to this decision, wireless telecommunications carriers now only have to file a
written notification of a pro forma transaction within 30 days after the
transaction is completed. This decision expedites the process and reduces the
costs related to corporate reorganizations; however, Arch is still required to
obtain prior FCC approval for the pro forma assignment or transfer of control of
some of their licenses not covered by the forbearance decision, such as certain
business radio and private operational fixed microwave authorizations.
The FCC paging licenses granted to Arch are for varying terms of up to 10
years, at the end of which renewal applications must be approved by the FCC. In
the past, paging license renewal applications generally have been granted by the
FCC upon a showing of compliance with FCC regulations and of adequate service to
the public. Arch is unaware of any circumstances which would prevent the grant
of any pending or future renewal applications; however, no assurance can be
given that any of Arch's renewal applications will be free of challenge or will
be granted by the FCC. It is possible that there may be competition for radio
spectrum associated with licenses as they expire, thereby increasing the chances
of third-party interventions in the renewal proceedings. Other than those
renewal applications still pending, the FCC has thus far granted each license
renewal application that Arch has filed.
The FCC's review and revision of rules affecting paging companies is ongoing
and the regulatory requirements to which Arch is subject may change
significantly over time. For example, the FCC has decided to adopt a market area
licensing scheme for all paging channels under which carriers would be licensed
to operate on a particular channel throughout a broad geographic area (for
example, a Major Trading Area as defined by Rand McNally) rather than being
licensed on a site-by-site basis. These geographic area licenses will be awarded
pursuant to auction. Incumbent paging licensees that do not acquire licenses at
auction will be entitled to interference protection from the market area
licensee. Arch is participating actively in this proceeding in order to protect
its existing operations and retain flexibility, on an interim and long-term
basis, to modify systems as necessary to meet subscriber demands.
Currently, however, the Communications Act requires that Arch obtain licenses
from the FCC to use radio frequencies to conduct their paging operations at
specified locations. FCC licenses issued to Arch set forth the technical
parameters, such as power strength and tower height, under which Arch is
authorized to use those frequencies. In many instances, Arch requires the prior
approval of the FCC before it can implement any significant changes to its radio
systems. Once the FCC's market area licensing rules are implemented, however,
these site-specific licensing obligations will be eliminated, with the exception
of applications still required by Section 22.369 of the FCC rules (request for
authority to operate in a designated Quiet Zone), Section 90.77 (request for
authority to operate in a protected radio receiving location) and Section 1.1301
et seq. (construction/modification that may have a significant environmental
impact) or for coordination with Canada or Mexico.
The FCC has issued a Further Notice of Proposed Rulemaking in which the FCC
sought comments on, among other matters, whether it should impose coverage
requirements on licensees with nationwide exclusivity (such as Arch), whether
these coverage requirements should be imposed on a nationwide or regional basis,
and whether--if such requirements are imposed--failure to meet the requirements
should result in a revocation of the entire nationwide license or merely a
portion of the license. If the FCC were to impose stringent coverage
requirements on licensees with nationwide exclusivity, Arch might have to
accelerate the build-out of its systems in certain areas.
Telecommunications Act of 1996
The Telecommunications Act directly affects Arch. Some aspects of the
Telecommunications Act may place financial obligations upon Arch or subject Arch
to increased competition. For example, the FCC has adopted rules that govern
compensation to be paid to pay phone providers which has resulted in increased
9
<PAGE>
costs for certain paging services including toll-free 1-800 number paging. Arch
has generally passed these costs on to its subscribers, which makes Arch's
services more expensive and which could affect the attraction or retention of
customers; however, there can be no assurance that Arch will be able to continue
to pass on these costs. In addition, the FCC also has adopted new rules
regarding payments by telecommunications companies into a revamped fund that
will provide for the widespread availability of telecommunications services
including Universal Service. Prior to the implementation of the
Telecommunications Act, Universal Service obligations largely were met by local
telephone companies, supplemented by long-distance telephone companies. Under
the new rules, all telecommunications carriers, including paging companies, are
required to contribute to the Universal Service Fund. In addition, certain state
regulatory authorities have enacted, or have indicated that they intend to
enact, similar contribution requirements based on intrastate revenues. Arch can
not yet know the full impact of these state contribution requirements. Moreover,
Arch is unable at this time to estimate the amount of any such payments that it
will be able to bill to its subscribers; however, payments into the Universal
Service Fund will likely increase the cost of doing business.
Some aspects of the Telecommunications Act could have a beneficial effect on
Arch's business. For example, proposed federal guidelines regarding antenna
siting issues may remove local and state barriers to the construction of
communications facilities, although states and municipalities continue to
exercise significant control with regard to such siting issues.
Moreover, in a rulemaking proceeding pertaining to interconnection between
local exchange carriers ("LECs") and commercial mobile radio services ("CMRS")
providers such as Arch, the FCC has concluded that LECs are required to
compensate CMRS providers for the reasonable costs incurred by such providers in
terminating traffic that originates on LEC facilities, and vice versa.
Consistent with this ruling, the FCC has determined that LECs may not charge a
CMRS provider or other carrier for terminating LEC-originated traffic or for
dedicated facilities used to deliver LEC-originated traffic to one-way paging
networks. Nor may LECs charge CMRS providers for number activation and use fees.
These interconnection issues are still in dispute, and it is unclear whether the
FCC will maintain its current position.
Future Regulation
Depending on further FCC disposition of these issues, Arch may or may not be
successful in securing refunds, future relief or both, with respect to charges
for termination of LEC-originated local traffic. If the FCC ultimately reaches
an unfavorable resolution, then Arch believes that it would pursue relief
through settlement negotiations, administrative complaint procedures or both. If
these issues are ultimately decided in favor of the LECs, Arch likely would be
required to pay all past due contested charges and may also be assessed interest
and late charges for amounts withheld.
From time to time, legislation which could potentially affect Arch, either
beneficially or adversely, is proposed by federal or state legislators. There
can be no assurance that legislation will not be enacted by the federal or state
governments, or that regulations will not be adopted or actions taken by the FCC
or state regulatory authorities, which might materially adversely affect the
business of Arch. Changes such as the allocation by the FCC of radio spectrum
for services that compete with Arch's business could adversely affect Arch's
results of operations. For example, pursuant to the 1994 Communications
Assistance for Law Enforcement Act ("CALEA"), all telecommunications carriers,
including Arch, are subject to certain law enforcement assistance capability
requirements. These capability requirements will likely necessitate equipment
modifications. Although CALEA requires the federal government to reimburse
carriers for certain equipment modifications, it is unclear whether Arch will be
entitled to such a reimbursement and if so, how much Arch will receive.
Foreign Ownership
The Communications Act limits foreign investment in and ownership of entities
that are licensed as radio common carriers by the FCC. Arch owns or controls
several radio common carriers and is accordingly subject to these foreign
investment restrictions. Because Arch is a parent of radio common carriers (but
is not a radio common carrier itself), Arch may not have more than 25% of its
stock owned or voted by aliens or their representatives, a foreign government or
its representatives or a foreign corporation if the FCC finds that the public
interest would be served by denying such ownership. In connection with the World
Trade Organization Agreement (the "WTO Agreement")--agreed to by 69
countries--the FCC adopted rules effective February 9, 1998 that create a very
strong presumption in favor of permitting a foreign interest in excess of 25% if
the foreign investor's home market country signed the WTO Agreement or can
otherwise demonstrate that it provides effective competitive opportunities.
10
<PAGE>
Arch's subsidiaries that are radio common carrier licensees are subject to more
stringent requirements and may have only up to 20% of their stock owned or voted
by aliens or their representatives, a foreign government or its representatives
or a foreign corporation. This ownership restriction is not subject to waiver.
Arch's Restated Certificate of Incorporation, as amended, permits the redemption
of shares of Arch's capital stock from foreign stockholders where necessary to
protect FCC licenses held by Arch or its subsidiaries, but such redemption would
be subject to the availability of capital to Arch and any restrictions contained
in applicable debt instruments and under the DGCL (which currently would not
permit any such redemptions). The failure to redeem such shares promptly could
jeopardize the FCC licenses held by Arch or its subsidiaries.
State Regulation
In addition to regulation by the FCC, certain states impose various
regulations on the common carrier paging operations of Arch. Regulations in some
states historically required Arch to obtain certificates of public convenience
and necessity before constructing, modifying or expanding paging facilities or
offering or abandoning paging services. Rates, terms and conditions under which
Arch provided services, or any changes to those rates, have also been subject to
state regulation. However, as a general rule, states are preempted from
exercising rate and entry regulation of CMRS, but may choose to regulate other
terms and conditions of service (for example, requiring the identification of an
agent to receive complaints). States also are accorded an opportunity to
petition the FCC for authority to continue to regulate CMRS rates if certain
conditions are met. State filings seeking rate authority have all been denied by
the FCC, although new petitions seeking such authority may be filed in the
future. The preemption of state entry regulation was confirmed in the
Telecommunications Act. In certain instances, the construction and operation of
radio transmitters also will be subject to zoning, land use, public health and
safety, consumer protection and other state and local taxes, levies and
ordinances. Further, some states and localities continue to exert jurisdiction
over (i) approval of acquisitions and transfers of wireless systems; and (ii)
resolution of consumer complaints. Arch believes that to date all required
filings for Arch's paging operations have been made.
TRADEMARKS
Arch owns the service marks "Arch" and "Arch Paging" as well as various other
trademarks.
EMPLOYEES
At December 31, 1998, Arch employed approximately 2,600 persons. None of
Arch's employees is represented by a labor union. Arch believes that its
employee relations are good.
ITEM 2. PROPERTIES
At December 31, 1998, Arch owned four office buildings and leased office
space (including its executive offices) in over 175 localities in 35 states for
use in conjunction with its paging operations. Arch leases transmitter sites
and/or owns transmitters on commercial broadcast towers, buildings and other
fixed structures in approximately 3,400 locations in 45 states. Arch's leases
are for various terms and provide for monthly lease payments at various rates.
Arch believes that it will be able to obtain additional space as needed at
acceptable cost. In April 1998, Arch announced an agreement to sell certain
tower site assets (the "Tower Site Sale") pursuant to which Arch sold
communications towers, real estate, site management contracts and/or leasehold
interests involving 133 sites (including one site acquired from entities
affiliated with Benbow) in 22 states, and is renting space on the towers on
which it currently operates communications equipment to service its own paging
network. As of February 28, 1999, the Company completed the sale of
substantially all of the sites. As part of the Divisional Reorganization, the
Company has closed certain office and retail locations and it will continue to
evaluate its remaining real estate assets during 1999.
ITEM 3. LEGAL PROCEEDINGS
Arch, from time to time, is involved in lawsuits arising in the normal course
of business. Arch believes that its currently pending lawsuits will not have a
material adverse effect on Arch.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the three months
ended December 31, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $0.01 par value per share (the "Common Stock"),
is included in the NASDAQ National Market under the symbol "APGR". The following
table sets forth for the periods indicated the high and low sales prices per
share of the Common Stock as reported by the NASDAQ National Market.
1998 High Low
---- ---- ---
First Quarter.................................. $ 6.125 $ 3.000
Second Quarter................................. $ 6.938 $ 3.500
Third Quarter.................................. $ 5.000 $ 1.688
Fourth Quarter................................. $ 1.750 $ 0.688
1997 High Low
---- ---- ---
First Quarter.................................. $ 10.000 $ 3.750
Second Quarter................................. $ 8.375 $ 3.750
Third Quarter.................................. $ 9.500 $ 5.875
Fourth Quarter................................. $ 9.125 $ 4.125
The number of common stockholders of record as of March 10, 1999 was 175. The
Company believes that the number of beneficial common stockholders is in excess
of 6,000.
The Company has never declared or paid cash dividends on the Common Stock and
does not intend to declare or pay cash dividends on the Common Stock in the
foreseeable future. Certain covenants in the credit facility and debt
obligations of the Company and its subsidiaries will effectively prohibit the
declaration or payment of cash dividends by the Company for the foreseeable
future. See Note 3 to the Company's Consolidated Financial Statements; "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations --Factors Affecting Future Operating Results --API Credit Facility,
Bridge Facility and Indenture Restrictions"; and "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations
- --Factors Affecting Future Operating Results --No Dividends".
By letter dated July 27, 1998, The Nasdaq Stock Market, Inc. ("Nasdaq")
notified the Company that its Common Stock was not in compliance with the
minimum closing bid price requirement of $5.00 per share for continued listing
on the Nasdaq National Market ("NNM"). In response to Nasdaq's letter, the
Company sought and obtained approval from its stockholders on January 26, 1999
for a reverse stock split designed to increase the minimum closing bid price of
the Company's Common Stock above $5.00 per share. Nasdaq has informed the
Company that it must be in compliance with all requirements for continued
listing on the NNM by March 31, 1999 or its Common Stock will be delisted on
that date. The Company is financing the pending MobileMedia Merger, in part,
with the proceeds of ongoing rights offerings being made to MobileMedia's
unsecured creditors and the Company's existing stockholders. The Company
believes that implementation of the reverse stock split in the midst of these
rights offerings would cause confusion and possible harm to investors and,
accordingly, has requested Nasdaq to extend the March 31, 1999 deadline so that
the reverse stock split can be implemented in conjunction with the closing of
the MobileMedia Merger. However, there can be no assurance Nasdaq will grant
this extension. If the extension is not granted, the Company's Common Stock will
be delisted from Nasdaq on March 31, 1999 unless the Company has implemented the
reverse stock split and the Common Stock's minimum closing bid price exceeds
$5.00 per share. Listing of the Common Stock on the NNM is a condition to the
consummation of the MobileMedia Merger. If the Common Stock is delisted from the
NNM on March 31, 1999, the Company intends to seek the immediate listing of the
Common Stock on the Nasdaq Small Cap Market and, prior to the MobileMedia
Merger, to reapply for listing of the Common Stock on the NNM. There can be no
assurance the Common Stock will be listed on the NNM at the scheduled time for
the MobileMedia Merger. None of the information relating to the Common Stock
contained in this Annual Report reflects the implementation of the reverse stock
split.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following Selected Consolidated Financial and Operating Data should be
read in conjunction with Item 1 - "Business", Item 7 "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and Notes thereto. Dollars in thousands except
per share amounts.
<TABLE>
<CAPTION>
Year Ended Four Months Ended
August 31,(1) December 31, (1) Year Ended December 31,
------------- ------------------- -----------------------------------------------------
1994 1993 1994 1994(1) 1995 1996 1997 1998
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Service, rental and maintenance
revenues .................... $ 55,139 $ 16,457 $ 22,847 $ 61,529 $ 138,466 $ 291,399 $ 351,944 $ 371,154
Product sales ................. 12,108 2,912 5,178 14,374 24,132 39,971 44,897 42,481
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues ................ 67,247 19,369 28,025 75,903 162,598 331,370 396,841 413,635
Cost of products sold ......... (10,124) (2,027) (4,690) (12,787) (20,789) (27,469) (29,158) (29,953)
--------- --------- --------- --------- --------- --------- --------- ---------
57,123 17,342 23,335 63,116 141,809 303,901 367,683 383,682
Operating expenses:
Service, rental and
maintenance ............... 13,123 3,959 5,231 14,395 29,673 64,957 79,836 80,782
Selling ..................... 10,243 3,058 4,338 11,523 24,502 46,962 51,474 49,132
General and administrative... 17,717 5,510 7,022 19,229 40,448 86,181 106,041 112,181
Depreciation and
amortization .............. 16,997 5,549 6,873 18,321 60,205 191,871 232,347 221,316
Restructuring charge ........ -- -- -- -- -- -- -- 14,700
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss) ....... (957) (734) (129) (352) (13,019) (86,070) (102,015) (94,429)
Interest and non-operating
expenses, net ............... (4,112) (1,132) (1,993) (4,973) (22,522) (75,927) (97,159) (104,213)
Equity in loss of affiliate(2). -- -- -- -- (3,977) (1,968) (3,872) (5,689)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income
tax benefit and extraordinary
item ........................ (5,069) (1,866) (2,122) (5,325) (39,518) (163,965) (203,046) (204,331)
Income tax benefit ............ -- -- -- -- 4,600 51,207 21,172 --
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item .......... (5,069) (1,866) (2,122) (5,325) (34,918) (112,758) (181,874) (204,331)
Extraordinary item (3) ....... -- -- (1,137) (1,137) (1,684) (1,904) -- (1,720)
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) ............. $ (5,069) $ (1,866) $ (3,259) $ (6,462) $ (36,602) $(114,662) $(181,874) $(206,051)
========= ========= ========= ========= ========= ========= ========= =========
Other Operating Data:
Adjusted EBITDA (4) ........... $ 16,040 $ 4,815 $ 6,744 $ 17,969 $ 47,186 $ 105,801 $ 130,332 $ 141,587
Adjusted EBITDA margin (5) .... 28% 28% 29% 28% 33% 35% 35% 37%
Capital expenditures, excluding
acquisitions ................ $ 25,657 $ 7,486 $ 15,279 $ 33,450 $ 60,468 $ 165,206 $ 102,769 $ 113,184
Cash flows provided by
operating activities ....... $ 14,781 $ 5,306 $ 4,680 $ 14,155 $ 14,749 $ 37,802 $ 63,590 $ 81,105
Cash flows used in investing
activities .................. $ (28,982) $ (7,486) $ (34,364) $ (55,860) $(192,549) $(490,626) $(102,769) $ (82,868)
Cash flows provided by
financing activities ........ $ 14,636 $ 11,290 $ 26,108 $ 29,454 $ 179,092 $ 452,678 $ 39,010 $ 68
Units in service at end
of period ................... 410,000 288,000 538,000 538,000 2,006,000 3,295,000 3,890,000 4,276,000
<CAPTION>
As of
August 31, (1) As of December 31,
-------------- ---------------------------------------------------------------
1994 1994 1995 1996 1997 1998
--------- ------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets................. $ 6,751 $ 8,483 $ 33,671 $ 43,611 $ 51,025 $ 50,712
Total assets................... 76,255 117,858 785,376 1,146,756 1,020,720 904,285
Long-term debt, less current
maturities................... 67,328 93,420 457,044 918,150 968,896 1,003,499
Redeemable preferred stock..... -- -- 3,376 3,712 -- --
Stockholders' equity (deficit). (3,304) 9,368 246,884 147,851 (33,255) (213,463)
<FN>
(1)On October 17, 1994, Arch announced that it was changing its fiscal year end from August 31 to December 31. Arch was
required to file a transition report on Form 10-K with audited financial statements for the period September 1, 1994
13
<PAGE>
through December 31, 1994 and has elected to include herein, for comparative purposes, unaudited financial statements
for the periods September 1, 1993 through December 31, 1993 and January 1, 1994 through December 31, 1994.
(2)Represents Arch's pro rata share of USA Mobile Communications Holdings, Inc.'s ("USA Mobile") net losses for the
period of time from Arch's acquisition of its initial 37% interest in USA Mobile on May 16, 1995 through the completion
of Arch's acquisition of USA Mobile on September 7, 1995 and Arch's share of losses of the Benbow PCS Ventures, Inc.
since Arch's acquisition of Westlink in May 1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources".
(3)Reflects extraordinary charge resulting from prepayment of indebtedness. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations".
(4)Adjusted EBITDA, as determined by Arch, consists of EBITDA (earnings before interest, taxes, depreciation and
amortization) net of restructuring charges, equity in loss of affiliate and extraordinary items; consequently Adjusted
EBITDA may not necessarily be comparable to similarly titled data of other paging companies. EBITDA is commonly used by
analysts and investors as a principal measure of financial performance in the paging industry. EBITDA is also one of
the primary financial measures used to calculate whether Arch and its subsidiaries are in compliance with covenants
under their respective indebtedness which covenants, among other things, limit the ability of Arch and its subsidiaries
to: incur additional indebtedness, advance funds to Benbow, pay dividends, grant liens on its assets, merge, sell or
acquire assets, repurchase or redeem capital stock, incur capital expenditures and prepay certain indebtedness. EBITDA
is also one of the financial measures used by analysts to value the Company. Therefore Arch management believes that
the presentation of EBITDA provides relevant information to investors. EBITDA should not be construed as an alternative
to operating income or cash flows from operating activities as determined in accordance with GAAP or as a measure of
liquidity. Amounts reflected as EBITDA or Adjusted EBITDA are not necessarily available for discretionary use as a
result of, among other things, restrictions imposed by the terms of existing indebtedness or limitations imposed by
applicable law upon the payment of dividends or distributions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
The following table reconciles net income to the presentation of Adjusted EBITDA:
</FN>
<CAPTION>
Year Ended Four Months Ended
August 31, December 31, Year Ended December 31,
---------- ------------------- -----------------------------------------------------
1994 1993 1994 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)................ $ (5,069) $ (1,866) $ (3,259) $ (6,462) $ (36,602) $(114,662) $(181,874) $(206,051)
Interest and non-operating
expenses, net.................. 4,112 1,132 1,993 4,973 22,522 75,927 97,159 104,213
Income tax benefit............... -- -- -- -- (4,600) (51,207) (21,172) --
Depreciation and amortization.... 16,997 5,549 6,873 18,321 60,205 191,871 232,347 221,316
Restructuring charge............. -- -- -- -- -- -- -- 14,700
Equity in loss of affiliate...... -- -- -- -- 3,977 1,968 3,872 5,689
Extraordinary Item............... -- -- 1,137 1,137 1,684 1,904 -- 1,720
--------- -------- --------- --------- --------- --------- --------- ---------
Adjusted EBITDA.......... $ 16,040 $ 4,815 $ 6,744 $ 17,969 $ 47,186 $ 105,801 $ 130,332 $ 141,587
========= ======== ========= ========= ========= ========= ========= =========
<FN>
(5)Calculated by dividing Arch Adjusted EBITDA by total revenues less cost of products sold. EBITDA margin is a measure
commonly used in the paging industry to evaluate a company's EBITDA relative to total revenues less cost of products
sold as an indicator of the efficiency of a company's operating structure.
</FN>
</TABLE>
14
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements and information
relating to Arch and its subsidiaries that are based on the beliefs of Arch's
management as well as assumptions made by and information currently available to
Arch's management. These statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. When used
herein, words such as "anticipate", "believe", "estimate", "expect", "intend"
and similar expressions, as they relate to Arch or its management, identify
forward-looking statements. Such statements reflect the current views of Arch
with respect to future events and are subject to certain risks, uncertainties
and assumptions, including but not limited to those factors set forth below
under the caption "Factors Affecting Future Operating Results". Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results or outcomes may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. Investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their respective dates. Arch
undertakes no obligation to update or revise any forward-looking statements. All
subsequent written or oral forward-looking statements attributable to Arch or
persons acting on behalf of Arch are expressly qualified in their entirety by
the discussion under "Factors Affecting Future Operating Results".
OVERVIEW
The following discussion and analysis should be read in conjunction with
Arch's Consolidated Financial Statements and Notes thereto included elsewhere in
this Annual Report.
Arch is a leading provider of wireless messaging services, primarily paging
services, and is the third largest paging company in the United States based on
its 4.3 million units in service at December 31, 1998. From January 1, 1996
through December 31, 1998, Arch's total number of units in service grew at a
compound rate on an annualized basis of 28.7%. For the same period on an
annualized basis, Arch's compound rate of internal unit in service growth
(excluding units added through acquisitions) was 23.8%.
Arch derives the majority of its revenues from fixed periodic (usually
monthly) fees, not dependent on usage, charged to subscribers for paging
services. As long as a subscriber remains on service, operating results benefit
from the recurring payments of the fixed periodic fees without incurrence of
additional selling expenses by Arch. Arch's service, rental and maintenance
revenues and the related expenses exhibit substantially similar growth trends.
Arch's average revenue per subscriber has declined over the last three years for
two principal reasons: (i) an increase in the number of subscriber owned and
reseller owned pagers for which Arch receives no recurring equipment revenue and
(ii) an increase in the number of reseller customers whose airtime is purchased
at wholesale rates. The reduction in average paging revenue per subscriber
resulting from these trends has been more than offset by the elimination of
associated expenses so that Arch's margins have improved over such period.
Furthermore, recent data indicates such rate of decline has slowed.
Arch has achieved significant growth in units in service and Adjusted EBITDA
through a combination of internal growth and acquisitions, including the
acquisition of Westlink in May 1996. Arch's total revenues have increased from
$331.4 million in the year ended December 31, 1996 to $396.8 million in the year
ended December 31, 1997 and to $413.6 million in the year ended December 31,
1998. Over the same periods, through operating efficiencies and economies of
scale, Arch has been able to reduce its per unit operating costs to enhance its
competitive position in its markets. Due to the rapid growth in its subscriber
base, Arch has incurred significant selling expenses, which are charged to
operations in the period incurred. Arch had net losses of $114.7 million, $181.9
million and $206.1 million in the years ended December 31, 1996, 1997 and 1998,
respectively, as a result of significant depreciation and amortization expenses
related to acquired and developed assets and interest charges associated with
indebtedness. However, as its subscriber base has grown, Arch's operating
results have improved, as evidenced by an increase in it Adjusted EBITDA from
$105.8 million in the year ended December 31, 1996 to $130.3 million in the year
ended December 31, 1997 and to $141.6 million in the year ended December 31,
1998.
EBITDA is a commonly used measure of financial performance in the paging
industry. Adjusted EBITDA is also one of the financial measures used to
calculate whether Arch and its subsidiaries are in compliance with the covenants
under their respective debt agreements, but should not be construed as an
alternative to operating income or cash flows from operating activities as
determined in accordance with GAAP. One of Arch's financial objectives is to
increase its Adjusted EBITDA, as such earnings are a significant source of funds
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for servicing indebtedness and for investment in continued growth, including
purchase of pagers and paging system equipment, construction and expansion of
paging systems, and possible acquisitions. Adjusted EBITDA, as determined by
Arch, may not necessarily be comparable to similarly titled data of other paging
companies. Amounts reflected as Adjusted EBITDA are not necessarily available
for discretionary use as a result of restrictions imposed by the terms of
existing or future indebtedness (including the repayment of such indebtedness or
the payment of interest thereon), limitations imposed by applicable law upon the
payment of dividends or distributions or capital expenditure requirements.
TOWER SITE SALE
In April 1998, Arch announced an agreement for the Tower Site Sale pursuant
to which Arch is selling certain tower site assets of ACI for approximately
$38.0 million in cash (subject to adjustment). In the Tower Site Sale, ACI is
selling communications towers, real estate, site management contracts and/or
leasehold interests involving 133 sites in 22 states and will rent space on the
towers on which it currently operates communications equipment to service its
own paging network. ACI used the net proceeds from the Tower Site Sale to repay
indebtedness. ACI held the initial closing of the Tower Site Sale on June 26,
1998 with gross proceeds to ACI of approximately $12.0 million (excluding $1.3
million which was paid to entities affiliated with Benbow for certain assets
owned by such entities and sold as part of this transaction) and held a second
closing on September 29, 1998 with gross proceeds to ACI of $20.4 million. The
Company has completed the sale of substantially all of the tower sites.
DIVISIONAL REORGANIZATION
In June 1998, the Arch Board approved the Divisional Reorganization. As part
of the Divisional Reorganization, which is being implemented over a period of 18
to 24 months, Arch has consolidated its former Midwest, Western, and Northern
divisions into four existing operating divisions, and is in the process of
consolidating certain regional administrative support functions, such as
customer service, collections, inventory and billing, to reduce redundancy and
take advantage of various operating efficiencies.
Arch estimates that the Divisional Reorganization, once fully implemented,
will result in annual cost savings of approximately $15.0 million. These cost
savings will consist primarily of a reduction in compensation expense of
approximately $11.5 million, a reduction in rental expense of facilities and
general and administrative costs of approximately $3.5 million. Arch expects to
reinvest a portion of these cost savings to expand its sales activities, however
to date the extent of this reinvestment and therefore the cost has not yet been
determined.
In connection with the Divisional Reorganization, Arch (i) anticipates a net
reduction of approximately 10% of its workforce, (ii) is closing certain office
locations and redeploying other real estate assets and (iii) recorded a
restructuring charge of $14.7 million during 1998. The restructuring charge
consisted of approximately (i) $9.7 million for employee severance, (ii) $3.5
million for lease obligations and terminations, and (iii) $1.5 million of other
costs. The severance costs and lease obligations will require cash outlays
throughout the 18 to 24 month restructuring period. Arch's management
anticipates the cash requirements for these items to be relatively consistent
from quarter to quarter throughout the Divisional Reorganization period. These
cash outlays will be funded from operations or the Company's credit facility.
There can be no assurance that the desired cost savings will be achieved or that
the anticipated reorganization of Arch's business will be accomplished smoothly,
expeditiously or successfully. See Note 9 to Arch's Consolidated Financial
Statements.
SUBSIDIARY RESTRUCTURING
On June 29, 1998, Arch effected a number of restructuring transactions
involving certain of its direct and indirect wholly owned subsidiaries. Arch
Communications Enterprises, Inc. ("ACE") was merged (the "ACE/USAM Merger") into
API, which was then a subsidiary of USA Mobile Communications, Inc. II ("USAM").
In connection with the ACE/USAM Merger, USAM changed its name to ACI and issued
100 shares of its common stock to Arch. Immediately prior to and in connection
with the ACE/USAM Merger, (i) USAM contributed its operating assets and
liabilities to an existing subsidiary of USAM, (ii) The Westlink Company, which
held ACE's 49.9% equity interest in Benbow, distributed its Benbow assets and
liabilities to a new subsidiary of ACE, The Westlink Company II, (iii) ACE
contributed its operating assets and liabilities to an existing subsidiary of
ACE, (iv) all of USAM's subsidiaries were merged into API, and (v) The Westlink
Company II was merged into a new API subsidiary, Benbow Investments, Inc.
("Benbow Investments").
In December 1998, Arch effected a further restructuring involving certain of
its direct and indirect wholly owned subsidiaries (the "December Subsidiary
Restructuring"). In connection with the December Subsidiary Restructuring, (i)
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The Beeper Company of America, Inc. a Colorado corporation and a wholly owned
subsidiary of API was converted in to Arch LLC, and (ii) all of API's direct and
indirect domestic subsidiaries, other than Arch Connecticut Valley, Inc. and
Benbow Investments were directly or indirectly merged into Arch LLC.
PENDING MOBILEMEDIA MERGER
On August 18, 1998, the Company entered into the MobileMedia Merger Agreement
providing for the MobileMedia Merger. The MobileMedia Merger is part of
MobileMedia's Reorganization Plan. Arch's stockholders approved the MobileMedia
Merger on January 26, 1999. On February 5, 1999, the FCC released an order
approving the transfer of MobileMedia's FCC licenses to Arch in connection with
the MobileMedia Merger, subject to approval and confirmation of the
Reorganization Plan. The order granting the transfer became a final order, no
longer subject to reconsideration or judicial review, on March 7, 1999.
Consummation of the MobileMedia Transactions is subject to the confirmation of
the Reorganization Plan by the U.S. Bankruptcy Court for the District of
Delaware, the occurrence or waiver of the conditions to the consummation of the
Reorganization Plan, performance by third parties of their contractual
obligations, the availability of sufficient financing and other conditions.
There can be no assurance the MobileMedia Merger will be consummated.
Pursuant to the MobileMedia Merger, Arch will: (i) issue certain stock and
warrants; (ii) pay $479.0 million in cash to certain creditors of MobileMedia;
(iii) pay approximately $85.0 million of administrative expenses, amounts to be
outstanding at the Effective Time under the DIP Credit Agreement and
transactional and related costs; (iv) raise $217.0 million in cash through the
Rights Offering; and (v) cause ACI and API to borrow a total of approximately
$347.0 million. After consummation of the MobileMedia Transactions, which is
expected to occur during the second quarter of 1999, MobileMedia will become a
wholly owned subsidiary of API.
RESULTS OF OPERATIONS
The following table presents certain items from Arch's Consolidated
Statements of Operations as a percentage of net revenues (total revenues less
cost of products sold) and certain other information for the periods indicated
(dollars in thousands except per pager data):
Year Ended December 31,
1996 1997 1998
---- ---- ----
Total revenues............................ 109.0 % 107.9 % 107.8 %
Cost of products sold..................... (9.0) (7.9) (7.8)
--------- --------- ---------
Net revenues.............................. 100.0 100.0 100.0
Operating expenses:
Service, rental and maintenance......... 21.4 21.7 21.1
Selling................................. 15.4 14.0 12.8
General and administrative.............. 28.4 28.8 29.2
Depreciation and amortization........... 63.1 63.2 57.7
Restructuring charge.................... -- -- 3.8
--------- --------- ---------
Operating income (loss)................... (28.3)% (27.7)% (24.6)%
========= ========= =========
Net income (loss)......................... (37.7)% (49.5)% (53.7)%
========= ========= =========
Adjusted EBITDA........................... 34.8 % 35.4 % 36.9 %
========= ========= =========
Cash flows provided by operating activities $ 37,802 $ 63,590 $ 81,105
Cash flows used in investing activities.... $(490,626) $(102,769) $ (82,868)
Cash flows provided by financing activities $ 452,678 $ 39,010 $ 68
Annual service, rental and maintenance
expenses per pager...................... $ 25 $ 22 $ 20
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YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Total revenues increased to $413.6 million (a 4.2% increase) in the year
ended December 31, 1998, from $396.8 million in the year ended December 31,
1997. Net revenues (total revenues less cost of products sold) increased to
$383.7 million (a 4.4% increase) in the year ended December 31, 1998 from $367.7
million in the year ended December 31, 1997. Total revenues and net revenues in
the year ended December 31, 1998 were adversely affected by a general slowing of
industry growth, compared to prior years; revenues were also adversely affected
in the fourth quarter of 1998 by Arch's conscious decision not to replace normal
attrition among direct sales personnel in anticipation of the MobileMedia Merger
and by the reduced effectiveness of certain reseller channels of distribution.
Arch expects revenue to continue to be adversely affected in the first quarter
of 1999 due to its fourth quarter 1998 decision not to replace normal attrition
among direct sales personnel and the reduced effectiveness of certain reseller
channels of distribution. Service, rental and maintenance revenues, which
consist primarily of recurring revenues associated with the sale or lease of
pagers, increased to $371.2 million (a 5.5% increase) in the year ended December
31, 1998 from $351.9 million in the year ended December 31, 1997. These
increases in revenues were due primarily to the increase, through internal
growth, in the number of units in service from 3.9 million at December 31, 1997
to 4.3 million at December 31, 1998. Maintenance revenues represented less than
10% of total service, rental and maintenance revenues in the years ended
December 31, 1998 and 1997. Arch does not differentiate between service and
rental revenues. Product sales, less cost of products sold, decreased to $12.5
million (a 20.4% decrease) in the year ended December 31, 1998 from $15.7
million in the year ended December 31, 1997, respectively, as a result of a
decline in the average revenue per pager sold.
Service, rental and maintenance expenses, which consist primarily of
telephone line and site rental expenses, increased to $80.8 million (21.1% of
net revenues) in the year ended December 31, 1998 from $79.8 million (21.7% of
net revenues) in the year ended December 31, 1997. The increase was due
primarily to increased expenses associated with system expansions and an
increase in the number of units in service. As existing paging systems become
more populated through the addition of new subscribers, the fixed costs of
operating these paging systems are spread over a greater subscriber base.
Annualized service, rental and maintenance expenses per subscriber were $20.00
in the year ended December 31, 1998 compared to $22.00 in the corresponding 1997
period.
Selling expenses decreased to $49.1 million (12.8% of net revenues) in the
year ended December 31, 1998 from $51.5 million (14.0% of net revenues) in the
year ended December 31, 1997. The decrease was due primarily to a decrease in
the number of net new subscriber additions and nonrecurring marketing costs
incurred in 1997 to promote Arch's new Arch Paging brand identity. The number of
net new subscriber additions resulting from internal growth decreased by 35.1%
in the year ended December 31, 1998 compared to the year ended December 31,
1997, primarily due to a general slowing of industry growth, compared to prior
years; net new subscriber additions were also adversely affected in the fourth
quarter of 1998 by Arch's conscious decision, in anticipation of the MobileMedia
Merger, not to replace normal attrition among direct sales personnel and by the
reduced effectiveness of certain reseller channels. Arch expects its selling
expenses to increase in 1999 due to increased hiring of direct sales personnel.
General and administrative expenses increased to $112.2 million (29.2% of net
revenues) in the year ended December 31, 1998, from $106.0 million (28.8% of net
revenues) in the year ended December 31, 1997. The increase was due primarily to
administrative and facility costs associated with supporting more units in
service.
Depreciation and amortization expenses decreased to $221.3 million in the
year ended December 31, 1998 from $232.3 million in the year ended December 31,
1997. These expenses principally reflect Arch's acquisitions of paging
businesses in prior periods accounted for as purchases, and investment in pagers
and other system expansion equipment to support growth.
Operating losses were $94.4 million in the year ended December 31, 1998
compared to $102.0 million in the year ended December 31, 1997, as a result of
the factors outlined above.
Net interest expense increased to $104.2 million in the year ended December
31, 1998 from $97.2 million in the year ended December 31, 1997. The increase is
principally attributable to an increase in Arch's outstanding debt. Interest
expense for the year ended December 31, 1998 and 1997 includes approximately
$37.0 million and $33.3 million, respectively, of non-cash interest accretion on
the 10 7/8% Senior Discount Notes.
Arch recognized an income tax benefit of $21.2 million in the year ended
December 31, 1997. This benefit represented the tax benefit of operating losses
incurred subsequent to the acquisitions of USA Mobile and Westlink which were
available to offset deferred tax liabilities arising from Arch's acquisition of
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USA Mobile in September 1995 and Westlink in May 1996. The tax benefit of these
operating losses was fully recognized during 1997. Accordingly, Arch has
established a valuation reserve against its deferred tax assets which as of
December 31,1998 reduced the income tax benefit to zero. Arch does not expect to
recover, in the foreseeable future, its deferred tax asset and will continue to
increase its valuation reserve accordingly. See Note 5 to Arch's Consolidated
Financial Statements.
In June 1998, Arch recognized an extraordinary charge of $1.7 million
representing the write-off of unamortized deferred financing costs associated
with the prepayment of indebtedness under prior credit facilities.
Net loss increased to $206.1 million in the year ended December 31, 1998 from
$181.9 million in the year ended December 31, 1997, as a result of the factors
outlined above.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Total revenues increased $65.5 million, or 19.8%, to $396.8 million in the
year ended December 31, 1997 from $331.4 million in the year ended December 31,
1996 and net revenues increased $63.8 million, or 21.0%, from $303.9 million to
$367.7 million over the same period. Service, rental and maintenance revenues
increased $60.5 million, or 20.8%, to $351.9 million in the year ended December
31, 1997 from $291.4 million in the year ended December 31, 1996. These
increases in revenues were due primarily to the increase in the number of units
in service from 3.3 million at December 31, 1996 to 3.9 million at December 31,
1997 and the full year impact of the Westlink acquisition which was completed in
May 1996. Maintenance revenues represented less than 10% of total service,
rental and maintenance revenues in the years ended December 31, 1996 and 1997.
Product sales, less cost of products sold, increased 25.9% to $15.7 million in
the year ended December 31, 1997 from $12.5 million in the year ended December
31, 1996 as a result of a greater number of pager unit sales.
Service, rental and maintenance expenses increased to $79.8 million (21.7% of
net revenues) in the year ended December 31, 1997 from $65.0 million (21.4% of
net revenues) in the year ended December 31, 1996. The increase was due
primarily to increased expenses associated with system expansions and the
provision of paging services to a greater number of subscribers. Annual service,
rental and maintenance expenses per subscriber decreased to $22.00 in the year
ended December 31, 1997 from $25.00 in the year ended December 31, 1996.
Selling expenses increased to $51.5 million (14.0% of net revenues) in the
year ended December 31, 1997 from $47.0 million (15.4% of net revenues) in the
year ended December 31, 1996. The increase in selling expenses was due to the
full year impact of the Westlink acquisition and the marketing costs incurred to
promote Arch's Arch Paging brand identity. Arch's selling cost per net new pager
in service increased to $87.00 in the year ended December 31, 1997 from $58.00
in the year ended December 31, 1996, primarily due to fixed selling costs and
increased marketing costs being spread over fewer net new units put into
service.
General and administrative expenses increased to $106.0 million (28.8% of net
revenues) in the year ended December 31, 1997 from $86.2 million (28.4% of net
revenues) in the year ended December 31, 1996. The increase in absolute dollars
was due primarily to increased expenses associated with supporting more units in
service, including the full year impact of Westlink, as well as expenses
associated with the establishment of Arch's National Services Division.
Depreciation and amortization expenses increased to $232.3 million (63.2% of
net revenues) in the year ended December 31, 1997 from $191.9 million (63.1% of
net revenues) in the year ended December 31, 1996. These expenses reflect Arch's
acquisitions of paging businesses, accounted for as purchases, and continued
investment in pagers and other system expansion equipment to support continued
growth.
Operating loss increased to $102.0 million in the year ended December 31,
1997 from $86.1 million in the year ended December 31, 1996 as a result of the
factors outlined above.
Net interest expense increased to $97.2 million in the year ended December
31, 1997 from $75.9 million in the year ended December 31, 1996. The increase
was attributable to an increase in Arch's average outstanding debt. In 1997 and
1996 interest expense includes approximately $33.0 million and $24.0 million,
respectively, of non-cash interest accretion on Arch's 10 7/8% Senior Discount
Notes due 2008 under which semi-annual interest payments commence on September
15, 2001. See Note 3 to Arch's Consolidated Financial Statements.
During the years ended December 31, 1997 and 1996, Arch recognized income tax
benefits of $21.2 million and $51.2 million, respectively, representing the tax
benefit of operating losses subsequent to the acquisitions of USA Mobile in
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September 1995 and Westlink in May 1996 which were available to offset deferred
tax liabilities arising from Arch's acquisitions of USA Mobile and Westlink.
During 1996, Arch recognized an extraordinary charge of $1.9 million,
representing the write-off of unamortized deferred financing costs associated
with the prepayment of indebtedness under a prior credit facility.
Net loss increased to $181.9 million in the year ended December 31, 1997 from
$114.7 million in the year ended December 31, 1996 as a result of the factors
outlined above. Included in the net loss for the years ended December 31, 1997
and 1996 were charges of $3.9 million and $2.0 million, respectively,
representing Arch's pro rata share of Benbow's losses since the Westlink
acquisition in May 1996.
LIQUIDITY AND CAPITAL RESOURCES
Arch's business strategy requires the availability of substantial funds to
finance the expansion of existing operations, to fund capital expenditures for
pagers and paging system equipment, to service debt and to finance acquisitions.
CAPITAL EXPENDITURES AND COMMITMENTS
Excluding acquisitions of paging businesses, Arch's capital expenditures were
$165.2 million in the year ended December 31, 1996, $102.8 million in the year
ended December 31, 1997 and $113.2 million in the year ended December 31, 1998.
To date, Arch has funded its capital expenditures with net cash provided by
operating activities and the incurrence of debt.
Arch's capital expenditures for the year ending December 31, 1998 were
primarily for the purchase of pagers, paging system equipment and transmission
equipment, information systems, advances to Benbow (as described below) and
capitalized financing costs. Arch believes that it will have sufficient cash
available from operations and credit facilities to fund anticipated expenditures
for the year ended December 31, 1999.
Arch is obligated, to the extent such funds are not available to Benbow from
other sources and subject to the approval of Arch's designee on Benbow's Board
of Directors, to advance to Benbow sufficient funds to service its FCC
license-related debt obligations incurred by Benbow in connection with its
acquisition of its N-PCS licenses and to finance construction of an N-PCS
system. The total cost to Benbow of servicing its debt obligations and
constructing an N-PCS system (including the effect of Benbow's acquisition of
Page Call) will be approximately $100.0 million over the next five years. See
"Business--Investments in Narrowband PCS Licenses".
OTHER COMMITMENTS AND CONTINGENCIES
Interest payments on the $467.4 million principal amount at maturity of
Arch's 10 7/8% Senior Discount Notes due 2008 (the "Senior Discount Notes")
commence September 15, 2001. Arch expects to service such interest payments out
of cash made available to it by its subsidiaries. Based on the principal amount
of Senior Discount Notes presently outstanding, such interest payments will
equal $25.4 million on March 15 and September 15 of each year until scheduled
maturity on March 15, 2008. A default by Arch in its payment obligations under
the Senior Discount Notes could have a material adverse effect on the business,
financial condition, results of operations or prospects of Arch. See "Factors
Affecting Future Operating Results--Indebtedness and High Degree of Leverage".
SOURCES OF FUNDS
Arch's net cash provided by operating activities was $37.8 million, $63.6
million and $81.1 million in the years ended December 31, 1996, 1997 and 1998,
respectively. Arch believes that its capital needs for the foreseeable future
will be funded with borrowings under current and future credit facilities, net
cash provided by operations and, depending on Arch's needs and market
conditions, possible sales of equity or debt securities. For additional
information, see Note 3 of Notes to Arch's Consolidated Financial Statements.
Arch's ability to access future borrowings will be dependent, in part, on its
ability to continue to grow its Adjusted EBITDA.
Issuance and Sale of Notes
On June 29, 1998, Arch through its wholly-owned subsidiary ACI, issued and
sold $130.0 million principal amount of 12 3/4% Senior Notes due 2007 (the
"Notes") for net proceeds of $122.6 million (after deducting the discount to the
initial purchasers and offering expenses paid by ACI). The Notes were sold at an
initial price to investors of 98.049%. The Notes mature on July 1, 2007 and bear
interest at a rate of 12 3/4% per annum, payable semi-annually in arrears on
January 1 and July 1 of each year, commencing January 1, 1999. See Note 3 to
Arch's Consolidated Financial Statements.
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Equity Investment
On June 29, 1998, two partnerships managed by Sandler Capital Management
Company, Inc., an investment management firm ("Sandler"), together with certain
other private investors, made an equity investment in Arch of $25.0 million in
the form of Series C Convertible Preferred Stock of Arch ("Series C Preferred
Stock"). Arch used $24.0 million of the net proceeds to repay indebtedness under
ACE's existing credit facility as part of the establishment of the Amended
Credit Facility. The Series C Preferred Stock: (i) is convertible into Common
Stock of Arch at an initial conversion price of $5.50 per share, subject to
certain adjustments; (ii) bears dividends at an annual rate of 8.0%, (A) payable
quarterly in cash or, at Arch's option, through the issuance of shares of Arch's
Common Stock valued at 95% of the then prevailing market price or (B) if not
paid quarterly, accumulating and payable upon redemption or conversion of the
Series C Preferred Stock or liquidation of Arch; (iii) permits the holders after
seven years to require Arch, at Arch's option, to redeem the Series C Preferred
Stock for cash or convert such shares into Arch's Common Stock valued at 95% of
the then prevailing market price of Arch's Common Stock; (iv) is subject to
redemption for cash or conversion into Arch's Common Stock at Arch's option in
certain circumstances; (v) in the event of a "Change of Control" as defined in
the Indenture governing Arch's 10 7/8% Senior Discount Notes due 2008 (the
"Senior Discount Notes Indenture"), requires Arch, at its option, to redeem the
Series C Preferred Stock for cash or convert such shares into Arch's Common
Stock valued at 95% of the then prevailing market price of Arch's Common Stock,
with such cash redemption or conversion being at a price equal to 105% of the
sum of the original purchase price plus accumulated dividends; (vi) limits
certain mergers or asset sales by Arch; (vii) so long as at least 50% of the
Series C Preferred Stock remains outstanding, limits the incurrence of
indebtedness and "restricted payments" in the same manner as contained in the
Senior Discount Notes Indenture; and (viii) has certain voting and preemptive
rights. Upon an event of redemption or conversion, Arch, at this time, intends
to convert the Series C Preferred Stock into Arch Common Stock.
API Credit Facility
On November 16, 1998, the lenders to API approved an increase in API's
existing credit facility from $400.0 million to $600.0 million, subject to
completing the MobileMedia Merger and certain other conditions. The increase of
$200.0 million (the "API Credit Facility Increase") was to fund a portion of the
cash necessary for Arch to complete the MobileMedia Merger. The API Credit
Facility Increase was to be provided by four of API's existing lenders, provided
the MobileMedia Transactions were completed prior to March 31, 1999. In December
1998 and January 1999, MobileMedia's general unsecured creditors ("Class 6
creditors") voted to accept the Reorganization Plan. In February 1999, the U.S.
Bankruptcy Court for the District of Delaware ordered that certain supplemental
disclosure be provided to the Class 6 creditors and that MobileMedia resolicit
votes from that class on the Reorganization Plan, set March 23, 1999 as the
deadline for re-voting by MobileMedia's Class 6 Creditors on the Reorganization
Plan and for filing objections to the Reorganization Plan, and scheduled the
confirmations hearing on the Reorganization Plan to resume on March 26, 1999. As
a result of the resolicitation of votes of the holders of Class 6 creditors, it
is not possible to consummate the MobileMedia Merger by March 31, 1999. The four
API lenders that were to fund the API Credit Facility Increase have indicated
their willingness to seek approval to extend $135.0 million of the API Credit
Facility Increase through June 30, 1999, subject to formal approval, definitive
documentation and negotiation of certain terms. See "Business--Pending
MobileMedia Merger" and Note 3 of Notes to Arch's Consolidated Financial
Statements.
INFLATION
Inflation has not had a material effect on Arch's operations to date. Paging
systems equipment and operating costs have not increased in price and Arch's
pager costs have declined substantially in recent years. This reduction in costs
has generally been reflected in lower pager prices charged to subscribers who
purchase their pagers. Arch's general operating expenses, such as salaries,
employee benefits and occupancy costs, are subject to normal inflationary
pressures.
FACTORS AFFECTING FUTURE OPERATING RESULTS
GROWTH AND ACQUISITION STRATEGY
Arch believes that the paging industry has experienced, and will continue to
experience, consolidation due to factors that favor larger, multi-market paging
companies, including (i) the ability to obtain additional radio spectrum, (ii)
greater access to capital markets and lower costs of capital, (iii) broader
geographic coverage of paging systems, (iv) economies of scale in the purchase
of capital equipment, (v) operating efficiencies and (vi) enhanced access to
executive personnel.
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Arch has pursued, and intends to continue to pursue, acquisitions of paging
businesses as a key component of its growth strategy. However, the process of
integrating acquired paging businesses may involve unforeseen difficulties and
may require a disproportionate amount of the time and attention of Arch's
management. No assurance can be given that suitable acquisitions can be
identified, financed and completed on acceptable terms, or that any future
acquisitions by Arch will be successful. See "Business--Paging Operations".
Implementation of Arch's growth strategy will be subject to numerous other
contingencies beyond the control of its management. These contingencies include
national and regional economic conditions, interest rates, competition, changes
in regulation or technology and the ability to attract and retain skilled
employees. Accordingly, no assurance can be given that Arch's growth strategy
will prove effective or that its goals will be achieved. See "Business--Business
Strategy" and "--Competition".
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
Arch's business strategy requires the availability of substantial funds to
finance the continued development and future growth and expansion of its
operations, including possible acquisitions. The amount of capital required by
Arch following the MobileMedia Merger will depend upon a number of factors,
including subscriber growth, the type of paging devices and services demanded by
customers, service revenues, technological developments, marketing and sales
expenses, competitive conditions, the nature and timing of Arch's N-PCS strategy
and acquisition strategies and opportunities. No assurance can be given that
additional equity or debt financing will be available to Arch when needed on
acceptable terms, if at all. The unavailability of sufficient financing when
needed would have a material adverse effect on Arch.
COMPETITION AND TECHNOLOGICAL CHANGE
Arch faces competition from other paging service providers in all markets in
which it operates, as well as from certain competitors who hold nationwide
licenses. Monthly fees for basic paging services have, in general, declined in
recent years, due in part to competitive conditions, and Arch may face
significant price-based competition in the future which could have a material
adverse effect on Arch. Certain competitors of Arch possess greater financial,
technical and other resources than Arch. A trend towards increasing
consolidation in the paging industry in particular and the wireless
communications industry in general in recent years has led to competition from
increasingly larger and better capitalized competitors. If any of such
competitors were to devote additional resources to the paging business or focus
on Arch's particular markets, there could be a material adverse effect on Arch.
Competitors are currently using and developing a variety of two-way paging
technologies. Arch does not presently provide such two-way services, other than
as a reseller. Although such services generally are higher priced than
traditional one-way paging services, technological improvements could result in
increased capacity and efficiency for such two-way paging technologies and,
accordingly, could result in increased competition for Arch. Future
technological advances in the telecommunications industry could increase new
services or products competitive with the paging services provided by Arch or
could require Arch to reduce the price of their paging services or incur
additional capital expenditures to meet competitive requirements. Recent and
proposed regulatory changes by the FCC are aimed at encouraging such
technological advances and new services. Other forms of wireless two-way
communications technology, including cellular and broadband personal
communications services ("PCS"), and specialized mobile radio services, also
compete with the paging services that Arch currently provides. While such
services are primarily focused on two-way voice communications, service
providers are, in many cases, electing to provide paging services as an adjunct
to their primary services. Technological change also may affect the value of the
pagers owned by Arch and leased to its subscribers. If Arch's subscribers
request more technologically advanced pagers, including, but not limited to,
two-way pagers, Arch could incur additional inventory costs and capital
expenditures if required to replace pagers leased to its subscribers within a
short period of time. Such additional investment or capital expenditures could
have a material adverse effect on Arch. There can be no assurance that Arch will
be able to compete successfully with current and future competitors in the
paging business or with competitors offering alternative communication
technologies. Pursuant to the CALEA, all telecommunications carriers, including
Arch, are subject to certain law enforcement assistance capability requirements.
These capability requirements will likely necessitate equipment modifications.
Although CALEA requires the federal government to reimburse carriers for certain
equipment modifications, it is unclear whether Arch will be entitled to such a
reimbursement and if so, how much Arch will receive. See "Business--Paging
Industry Overview and --Competition".
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GOVERNMENT REGULATION, FOREIGN OWNERSHIP AND POSSIBLE REDEMPTION
The paging operations of Arch are subject to regulation by the FCC and
various state regulatory agencies. The FCC paging licenses granted to Arch are
for varying terms of up to 10 years, at the end of which renewal applications
must be approved by the FCC. In the past, paging license renewal applications
generally have been granted by the FCC upon a showing of compliance with FCC
regulations and of adequate service to the public. Arch is unaware of any
circumstances which would prevent the grant of any pending or future renewal
applications; however, no assurance can be given that any of Arch's renewal
applications will be free of challenge or will be granted by the FCC. It is
possible that there may be competition for radio spectrum associated with
licenses as they expire, thereby increasing the chances of third party
interventions in the renewal proceedings. Other than those renewal applications
still pending, the FCC has thus far granted each license renewal application
that Arch has filed. There can be no assurance that the FCC and various state
regulatory agencies will not propose or adopt regulations or take actions that
would have a material adverse effect on Arch.
The FCC's review and revision of rules affecting paging companies is ongoing
and the regulatory requirements to which Arch is subject may change
significantly over time. For example, the FCC has decided to adopt a market area
licensing scheme for all paging channels under which carriers would be licensed
to operate on a particular channel throughout a broad geographic area (for
example, a Major Trading Area as defined by Rand McNally) rather than being
licensed on a site-by-site basis. These geographic area licenses will be awarded
pursuant to auction. Incumbent paging licensees that do not acquire licenses at
auction will be entitled to interference protection from the market area
licensee. Arch is participating actively in this proceeding in order to protect
its existing operations and retain flexibility, on an interim and long-term
basis, to modify systems as necessary to meet subscriber demands. The FCC has
issued a Further Notice of Proposed Rulemaking in which the FCC sought comments
on, among other matters, whether it should impose coverage requirements on
licensees with nationwide exclusivity (such as Arch), whether these coverage
requirements should be imposed on a nationwide or regional basis, and
whether--if such requirements are imposed--failure to meet the requirements
should result in a revocation of the entire nationwide license or merely a
portion of the license. If the FCC were to impose stringent coverage
requirements on licensees with nationwide exclusivity, Arch might have to
accelerate the build-out of its systems in certain areas.
Changes in regulation of Arch's paging businesses or the allocation of radio
spectrum for services that compete with Arch's business could adversely affect
its results of operations. In addition, some aspects of the Telecommunications
Act of 1996 (the "Telecommunications Act") may place additional burdens upon
Arch or subject Arch to increased competition. For example, the FCC has adopted
rules that govern compensation to be paid to pay phone providers which has
resulted in increased costs for certain paging services including toll-free
1-800 number paging. Arch has generally passed these costs on to its
subscribers, which makes Arch's services more expensive and which could affect
the attraction or retention of customers; however, there can be no assurance
that Arch will be able to continue to pass on these costs. In addition, the FCC
also has adopted rules regarding payments by telecommunications companies into a
revamped fund that will provide for the widespread availability of
telecommunications services, including to low-income consumers ("Universal
Service"). Prior to the implementation of the Telecommunications Act, Universal
Service obligations largely were met by local telephone companies, supplemented
by long-distance telephone companies. Under the new rules, certain
telecommunications carriers, including Arch, are required to contribute to a
revised fund created for Universal Service (the "Universal Service Fund"). In
addition, certain state regulatory authorities have enacted, or have indicated
that they intend to enact, similar contribution requirements based on state
revenues. Arch can not yet know the full impact of these state contribution
requirements. Moreover, Arch is not able at this time to estimate the amount of
any such payments that it will be able to bill to their subscribers; however,
payments into the Universal Service Fund will likely increase the cost of doing
business.
Moreover, in a rulemaking proceeding pertaining to interconnection between
LECs and CMRS providers such as Arch, the FCC has concluded that LECs are
required to compensate CMRS providers for the reasonable costs incurred by such
providers in terminating traffic that originates on LEC facilities, and vice
versa. Consistent with this ruling, the FCC has determined that LECs may not
charge a CMRS provider or other carrier for terminating LEC-originated traffic
or for dedicated facilities used to deliver LEC-originated traffic to one-way
paging networks. Nor may LECs charge CMRS providers for number activation and
use fees. These interconnection issues are still in dispute, and it is unclear
whether the FCC will maintain its current position. Depending on further FCC
disposition of these issues, Arch may or may not be successful in securing
refunds, future relief or both, with respect to charges for termination of
LEC-originated local traffic. If these issues are ultimately resolved by the FCC
in favor of CMRS providers, then Arch will pursue relief through settlement
negotiations, administrative complaint procedures or both. If these issues are
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ultimately decided in favor of the LECs, Arch likely would be required to pay
all past due contested charges and may also be assessed interest and late
charges for the withheld amounts. Although these requirements have not to date
had a material adverse effect on Arch, these or similar requirements could in
the future have a material adverse effect on Arch. See "Industry
Overview--Regulation".
The Communications Act also limits foreign investment in and ownership of
entities that are licensed as radio common carriers by the FCC. Arch owns or
controls several radio common carriers and is accordingly subject to these
foreign investment restrictions. Because Arch is a parent of radio common
carriers (but is not a radio common carrier itself), Arch may not have more than
25% of its stock owned or voted by aliens or their representatives, a foreign
government or its representatives or a foreign corporation if the FCC finds that
the public interest would be served by denying such ownership. In connection
with the WTO Agreement--agreed to by 69 countries--the FCC adopted rules
effective February 9, 1998 that create a very strong presumption in favor of
permitting a foreign interest in excess of 25% if the foreign investor's home
market country signed the WTO Agreement. Arch's subsidiaries that are radio
common carrier licensees are subject to more stringent requirements and may have
only up to 20% of their stock owned or voted by aliens or their representatives,
a foreign government or their representatives or a foreign corporation. This
ownership restriction is not subject to waiver. See "Business--Regulation".
Arch's Restated Certificate of Incorporation, as amended permits the redemption
of shares of Arch's capital stock from foreign stockholders where necessary to
protect FCC licenses held by Arch or its subsidiaries, but such redemption would
be subject to the availability of capital to Arch and any restrictions contained
in applicable debt instruments and under the DGCL (which currently would not
permit any such redemptions). The failure to redeem such shares promptly could
jeopardize the FCC licenses held by Arch or its subsidiaries.
SUBSCRIBER TURNOVER
The results of operations of wireless messaging service providers, such as
Arch, can be significantly affected by subscriber cancellations. The sales and
marketing costs associated with attracting new subscribers are substantial
relative to the costs of providing service to existing customers. Because the
paging business is characterized by high fixed costs, cancellations directly and
adversely affect EBITDA. An increase in the subscriber cancellation rate could
have a material adverse effect on Arch.
DEPENDENCE ON THIRD PARTIES
Arch does not manufacture any of the pagers used in its paging operations.
Arch buys pagers primarily from Motorola, NEC and Panasonic Communications &
Systems Company and therefore is dependent on such manufacturers to obtain
sufficient pager inventory for new subscriber and replacement needs. In
addition, Arch purchases terminals and transmitters primarily from Glenayre and
Motorola and thus is dependent on such manufacturers for sufficient terminals
and transmitters to meet their expansion and replacement requirements. To date,
Arch has not experienced significant delays in obtaining pagers, terminals or
transmitters, but there can be no assurance that Arch will not experience such
delays in the future. Arch's purchase agreement with Motorola expires on June
19, 1999, although it contains a provision for renewals for one-year terms.
There can be no assurance that Arch's agreement with Motorola will be renewed
or, if renewed, that such agreement will be on terms and conditions as favorable
to Arch as those under the current agreements. Although Arch believes that
sufficient alternative sources of pagers, terminals and transmitters exist,
there can be no assurance that Arch would not be materially adversely affected
if it were unable to obtain these items from current supply sources or on terms
comparable to existing terms. See "Business--Sources of Equipment". Finally,
Arch relies on third parties to provide satellite transmission for some aspects
of their paging services. To the extent there are satellite outages or if
satellite coverage is otherwise impaired, Arch may experience a loss of service
until such time as satellite coverage is restored, which could have a material
adverse effect on Arch.
POSSIBLE ACQUISITION TRANSACTIONS
Arch believes that the paging industry will undergo further consolidation,
and Arch expects to participate in such continued industry consolidation. Arch
has evaluated and expects to continue to evaluate possible acquisition
transactions on an ongoing basis and at any given time may be engaged in
discussions with respect to possible acquisitions or other business
combinations. The process of integrating acquired paging businesses may involve
unforeseen difficulties and may require a disproportionate amount of the time
and attention of Arch's management and financial and other resources. No
assurance can be given that suitable acquisition transactions can be identified,
financed and completed on acceptable terms, that Arch's future acquisitions will
be successful, or that Arch will participate in any future consolidation of the
paging industry.
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DEPENDENCE ON KEY PERSONNEL
The success of Arch will depend, to a significant extent, upon the continued
services of a relatively small group of executive personnel. Arch does not have
employment agreements with, or maintain life insurance on the lives of, any of
its current executive officers, although certain executive officers have entered
into non-competition agreements and all executive officers have entered into
executive retention agreements with Arch. The loss or unavailability of one or
more of its executive officers or the inability to attract or retain key
employees in the future could have a material adverse effect on Arch.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 problem is the result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of Arch's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, the computerized systems
(including both information and non-information technology systems) and
applications used by Arch are being reviewed, evaluated and, if and where
necessary, modified or replaced to ensure that all financial, information and
operating systems are Year 2000 compliant.
Arch has created a cross-functional project group (the "Y2K Project Group")
to work on the Year 2000 problem. The Y2K Project Group is finishing its
analysis of external and internal areas likely to be affected by the Year 2000
problem. It has classified the identified areas of concern into either a mission
critical or non-mission critical status. For the external areas, Arch has
distributed vendor surveys to its primary and secondary vendors. The surveys
requested information about hardware and/or software supplied by information
technology vendors as well as non-information technology system vendors that
might use embedded technologies in their systems or products. Information was
requested regarding the vendor's Year 2000 compliance planning, timing, status,
testing and contingency planning. As part of its evaluation of Year 2000
vulnerability related to its pager and paging equipment vendors, Arch has
discussed with them their efforts to identify potential issues associated with
their equipment and/or software and has concluded that, to the extent any
vulnerability exists, it has been addressed. Internally, Arch is completing an
inventory audit of hardware and software testing for both its corporate and
divisional operations. These areas of operation include: information systems,
finance, operations, inventory, billing, pager activation and purchasing.
Additional testing is scheduled to conclude in the second quarter of 1999.
Arch expects that it will incur costs to replace existing hardware, software
and paging equipment, which will be capitalized and amortized in accordance with
Arch's existing accounting policies, while maintenance or modification costs
will be expensed as incurred. Arch has upgraded hardware to enable compliance
testing to be performed on dedicated test equipment in an isolated
production-like environment. Based on Arch's costs incurred to date, as well as
estimated costs to be incurred over the next nine months, Arch does not expect
that resolution of the Year 2000 problem will have a material adverse effect on
its results of operations and financial condition. Costs of the Year 2000
project are based on current estimates and actual results may vary significantly
from such estimates once detailed plans are developed and implemented.
While it is Arch's stated goal to be compliant, on an internal basis, by
September 30, 1999, Arch may face the possibility that one or more of its
mission critical vendors, such as its utility providers, telephone carriers or
satellite carriers, may not be Year 2000 compliant. Because of the unique nature
of such vendors, alternative providers of these services may not be available.
Additionally, although Arch has initiated its test plan for its business-related
hardware and software applications, there can be no assurance that such testing
will detect all applications that may be affected by the Year 2000 problem.
Lastly, Arch does not manufacture any of the pagers or paging-related equipment
used by its customers or for its own paging operations. Although Arch is in the
process of testing of such equipment it has relied to a large extent on the
representations and assessments of its vendors with respect to their readiness.
Arch can offer no assurances as to the accuracy of such vendors' representations
and assessments.
Arch has initiated the process of designing and implementing contingency
plans relating to the Year 2000 problem. To this end, each department will
identify the likely risks and determine commercially reasonable solutions. The
Y2K Project Group will collect and review the determinations on both a
department-by-department and company-wide basis. Arch intends to complete its
Year 2000 contingency planning during calendar year 1999.
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NO DIVIDENDS
Arch has never declared or paid cash dividends. Arch does not intend, to
declare or pay any cash dividends in the foreseeable future. Certain covenants
in the API Credit Facility and in other Arch debt instruments, effectively
prohibit the declaration or payment of cash dividends by Arch for the
foreseeable future. In addition, the terms of the Series C Preferred Stock
generally prohibit the payment of cash dividends on Common Stock unless all
accrued and unpaid dividends on the Series C Preferred Stock are paid in full.
See "Market for Registrant's Common Equity and Related Stockholder Matters".
HISTORY OF LOSSES
Since its inception, Arch has not reported any net income. Arch reported net
losses of $114.7 million, $181.9 million, $206.1 million in the fiscal years
ended December 31, 1996, 1997 and 1998, respectively. These historical net
losses have resulted principally from substantial depreciation and amortization
expense, primarily related to intangible assets and pager depreciation, interest
expense and other costs of growth. Substantial and increased amounts of debt are
expected to be outstanding for the foreseeable future, which will result in
significant additional interest expense which could have a material adverse
effect on Arch. Arch expects to continue to report net losses for the
foreseeable future, whether or not the MobileMedia Merger is consummated. See
Arch's Consolidated Financial Statements included elsewhere herein.
VOLATILITY OF TRADING PRICE
The market price of Common Stock is subject to significant fluctuation and
has recently declined. Between November 1, 1997 and January 4, 1999, the
reported sale price of Common Stock on the NASDAQ National Market has ranged
from a low of $.6875 per share (in October 1998) to a high of $8.00 per share
(in November 1997). The trading price of Common Stock following the MobileMedia
Merger will likely be affected by numerous factors, including the risk factors
set forth herein, as well as prevailing economic and financial trends and
conditions in the public securities markets. During recent periods, share prices
of paging companies such as Arch have exhibited a high degree of volatility.
Shortfalls in revenues or EBITDA from the levels anticipated by the public
markets could have an immediate and significant adverse effect on the trading
price of Arch's Common Stock in any given period. Such shortfalls may result
from events that are beyond Arch's immediate control and can be unpredictable.
The trading price of Arch's shares may also be affected by developments,
including reported financial results and fluctuations in trading prices of the
shares of other publicly held companies in the paging industry generally, which
may not have any direct relationship with Arch's business or long-term
prospects. See "Market for Registrant's Common Equity and Related Stockholder
Matters".
INDEBTEDNESS AND HIGH DEGREE OF LEVERAGE
Arch is highly leveraged. At December 31, 1998, Arch and its subsidiaries had
outstanding $1.0 billion of total debt, including (i) $125.0 million principal
amount of ACI's 9 1/2% Senior Notes due 2004 (the "ACI 9 1/2% Notes"), (ii)
$100.0 million principal amount of ACI's 14% Senior Notes due 2004 (the "ACI 14%
Notes"), (iii) $127.6 million accreted value of ACI's 12 3/4% Senior Notes due
2007 (the "ACI 12 3/4% Notes" and, together with the ACI 9 1/2% Notes and the
ACI 14% Notes, the "ACI Notes"), (iv) $369.5 million accreted value of the
Senior Discount Notes, (v) $13.4 million principal amount of Arch's 6 3/4%
Convertible Subordinated Debentures due 2003 (the "Arch Convertible Debentures")
and (vi) $267.0 million of borrowings under the API Credit Facility. Arch's high
degree of leverage may have adverse consequences for Arch, including: (i) the
ability of Arch to obtain additional financing for acquisitions, working
capital, capital expenditures or other purposes, may be impaired or extinguished
or such financing may not be available on acceptable terms, if at all; (ii) a
substantial portion of the Adjusted EBITDA will be required to pay interest
expense, which will reduce the funds which would otherwise be available for
operations and future business opportunities; (iii) the API Credit Facility and
the indentures (the "Arch Indentures") under which the ACI Notes are outstanding
contain financial and restrictive covenants, the failure to comply with which
may result in an event of default which, if not cured or waived, could have a
material adverse effect on Arch; (iv) Arch may be more highly leveraged than its
competitors which may place it at a competitive disadvantage; (v) Arch's high
degree of leverage will make it more vulnerable to a downturn in its business or
the economy generally; and (vi) Arch's high degree of leverage may impair its
ability to participate in the future consolidation of the paging industry. Arch
has implemented various initiatives to reduce capital costs while sustaining
acceptable levels of unit and revenue growth. As a result, Arch's rate of
internal growth in units in service has slowed and is expected to remain below
the rates of internal growth previously achieved by Arch, but Arch has not yet
reduced its financial leverage significantly. There can be no assurance that
Arch will be able to reduce its financial leverage significantly or that Arch
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will achieve an appropriate balance between growth which it considers acceptable
and future reductions in financial leverage. If Arch is not able to achieve
continued growth in EBITDA, it may be precluded from incurring additional
indebtedness due to cash flow coverage requirements under existing debt
instruments. EBITDA is not a measure defined in GAAP and should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with GAAP. Adjusted EBITDA may not necessarily be comparable to
similarly titled data of other paging companies. See Arch's Consolidated
Financial Statements and Notes thereto included elsewhere herein.
MOBILEMEDIA MERGER CASH REQUIREMENTS
To fund the estimated cash payments required by the MobileMedia Merger of
approximately $347.0 million (consisting of $262.0 million to fund a portion of
the cash payments to MobileMedia's secured creditors and $85.0 million to fund
estimated administrative expenses, amounts to be outstanding at the Effective
Time under the DIP Credit Agreement and transaction expenses), API and The Bank
of New York, Toronto Dominion (Texas), Inc., Royal Bank of Canada and Barclays
Bank, PLC have executed a commitment letter for a $200.0 million increase to the
API Credit Facility (the "API Credit Facility Increase"). The API Credit
Facility Increase was approved on November 16, 1998 by all API lenders, provided
the MobileMedia Transactions were completed prior to March 31, 1999. As a result
of the resolicitation of votes of the holders of Class 6 creditors, it is not
possible to consummate the MobileMedia Merger by March 31, 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --Liquidity and Capital Resources --API Credit Facility". The four
API lenders that were to fund the API Credit Facility Increase have indicated
their willingness to seek approval to extend $135.0 million of the API Credit
Facility Increase through June 30, 1999, subject to formal approval, definitive
documentation and negotiation of certain terms. In addition, ACI intends to
issue $200.0 million of new senior notes (the "Planned ACI Notes"). There can be
no assurance that Arch will complete an offering of the Planned ACI Notes on
terms satisfactory to it, if at all. As a result, ACI and The Bear Stearns
Companies, Inc., TD Securities (USA), Inc., the Bank of New York and Royal Bank
of Canada have executed a commitment letter for a $120.0 million bridge facility
(the "Bridge Facility") which would be available to Arch in the absence of an
offering of the Planned ACI Notes. The Bridge Facility was scheduled to expire
on February 28, 1999 but ACI elected to extend it to June 30, 1999. The Planned
ACI Notes, the Bridge Facility and the MobileMedia Merger each require approval
by the Required Lenders (as defined in the API Credit Facility), and there can
be no assurance such approval will be granted. If API's lenders do not grant the
foregoing approvals, and Arch is not able to arrange alternative financing to
make the cash payments required by the MobileMedia Merger and therefore could
not consummate the MobileMedia Merger, and Arch's failure to perform its
obligations under the MobileMedia Merger Agreement is not otherwise excused,
Arch will be liable to pay the MobileMedia Breakup Fee of $32.5 million to
MobileMedia.
API CREDIT FACILITY, BRIDGE FACILITY AND INDENTURE RESTRICTIONS
The API Credit Facility, the Bridge Facility and the Arch Indentures impose
(or will impose) certain operating and financial restrictions on Arch. The API
Credit Facility requires API and, in certain cases, ACI, to maintain specified
financial ratios, among other obligations, including a maximum leverage ratio
and a minimum fixed charge coverage ratio, each as defined in the API Credit
Facility. In addition, the API Credit Facility limits or restricts, among other
things, API's ability to: (i) declare dividends or redeem or repurchase capital
stock; (ii) prepay, redeem or purchase debt; (iii) incur liens and engage in
sale/leaseback transactions; (iv) make loans and investments; (v) incur
indebtedness and contingent obligations; (vi) amend or otherwise alter debt
instruments and other material agreements; (vii) engage in mergers,
consolidations, acquisitions and asset sales; (viii) engage in transactions with
affiliates; and (ix) alter its lines of business or accounting methods. In
addition, the Bridge Facility and the Arch Indentures limit, among other things:
(i) the incurrence of additional indebtedness by Arch and its Restricted
Subsidiaries (as defined therein); (ii) the payment of dividends and other
restricted payments by Arch and its Restricted Subsidiaries; (iii) asset sales;
(iv) transactions with affiliates; (v) the incurrence of liens; and (vi) mergers
and consolidations. Arch's ability to comply with such covenants may be affected
by events beyond its control, including prevailing economic and financial
conditions. A breach of any of these covenants could result in a default under
the API Credit Facility, the Bridge Facility and/or the Arch Indentures. Upon
the occurrence of an event of default under the API Credit Facility, the Bridge
Facility or the Arch Indentures, the creditors could elect to declare all
amounts outstanding, together with accrued and unpaid interest, to be
immediately due and payable. If Arch were unable to repay any such amounts, the
creditors could proceed against the collateral securing certain of such
indebtedness. If the lenders under the API Credit Facility accelerate the
payment of such indebtedness, there can be no assurance that the assets of Arch
would be sufficient to repay in full such indebtedness and the other
indebtedness of Arch, including the Arch Notes and any borrowings under the
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Bridge Facility. In addition, because the API Credit Facility, the Bridge
Facility and the Arch Indentures limit (or will limit) the ability of Arch to
engage in certain transactions except under certain circumstances, Arch may be
prohibited from entering into transactions that could be beneficial to Arch
including the MobileMedia Merger, which is subject to the approval of the
Required Lenders (as defined under the API Credit Facility). Arch will be
incurring additional indebtedness in connection with the MobileMedia Merger and
the Reorganization.
POSSIBLE FLUCTUATIONS IN REVENUES AND OPERATING RESULTS
Arch believes that future fluctuations in its revenues and operating results
are possible as the result of many factors, including competition, subscriber
turnover, new service developments and technological change. Arch's current and
planned debt repayment levels are, to a large extent, fixed in the short term,
and are based in part on its expectations as to future revenues, and Arch may be
unable to adjust spending in a timely manner to compensate for any revenue
shortfall. Due to the foregoing or other factors, it is possible that due to
future fluctuations, Arch's revenue or operating results may not meet the
expectations of securities analysts or investors, which may have a material
adverse effect on the price of Arch's Common Stock. See "Market for Registrant's
Common Equity and Related Stockholder Matters".
DIVISIONAL REORGANIZATION
In June 1998, the Arch Board approved the Divisional Reorganization. As part
of such reorganization, which is expected to be implemented over a period of 18
to 24 months, Arch has consolidated its former Midwest, Western and Northern
divisions into four existing operating divisions and is in the process of
consolidating certain regional administrative support functions, such as
customer service, collections, inventory and billing, to reduce redundancy and
to take advantage of various operating efficiencies. Once fully implemented, the
Divisional Reorganization is expected to result in annual cost savings of
approximately $15.0 million. Arch expects to reinvest a portion of these cost
savings to expand its sales activities. In connection with the Divisional
Reorganization, Arch (i) anticipates a net reduction of approximately 10% of its
workforce, (ii) plans to close certain office locations and redeploy other real
estate assets and (iii) recorded a restructuring charge of $14.7 million in
1998. The restructuring charge consisted of approximately (i) $9.7 million for
employee severance, (ii) $3.5 million for lease obligations and terminations and
(iii) $1.5 million of other costs. There can be no assurance that the expected
cost savings will be achieved or that the reorganization of Arch's business will
be accomplished smoothly, expeditiously or successfully. The difficulties of
such reorganization may be increased by the need to integrate MobileMedia's
operations in multiple locations and to combine two corporate cultures. The
inability to successfully integrate the operations of MobileMedia would have a
material adverse effect on Arch.
ANTI-TAKEOVER PROVISIONS
Arch's Restated Certificate of Incorporation, as amended and Arch's By-laws
include provisions for a classified Board of Directors, the issuance of "blank
check" preferred stock (the terms of which may be fixed by the Arch Board
without further stockholder approval), a prohibition on stockholder action by
written consent in lieu of a meeting and certain procedural requirements
governing stockholder meetings. Arch also has a stockholders rights plan. In
addition, Section 203 of the DGCL will, with certain exceptions, prohibit Arch
from engaging in any business combination with any "interested stockholder" (as
defined therein) for a three-year period following the date that such
stockholder becomes an interested stockholder. Such provisions may have the
effect of delaying, making more difficult or preventing a change in control or
acquisition of Arch.
RECENT AND PENDING ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. Arch adopted SFAS No. 130
in 1998. The adoption of this standard did not have an effect on its reporting
of income.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information". SFAS No.
131 establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports. SFAS No. 131 also establishes standards
for related disclosures about products and services, geographic areas and major
customers. Arch adopted SFAS No. 131 for its year ended December 31, 1998.
Adoption of this standard did not have a significant impact on its reporting.
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In March 1998, the Accounting Standards Committee of the Financial Accounting
Standards Board issued Statement of Position 98-1 ("SOP 98-1") "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1
establishes criteria for capitalizing costs of computer software developed or
obtained for internal use. Arch adopted SOP 98-1 in 1998. The adoption of SOP
98-1 has not had a material effect on Arch's financial position or results of
operations.
In April 1998, the Accounting Standards Executive Committee of the Financial
Accounting Standards Board issued Statement of Position 98-5 ("SOP 98-5")
"Reporting on the Costs of Start-Up Activities". SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. Arch
adopted SOP 98-5 effective January 1, 1999. Initial application of SOP 98-5 will
be reported as the cumulative effect of a change in accounting principle. The
adoption of SOP 98-5 is not expected to have a material effect on Arch's
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
requires that every derivative instrument be recorded in the balance sheet as
either an asset or liability measured at its fair value and that changes in the
derivative's fair value be recognized currently in earnings. Arch intends to
adopt this standard effective January 1, 2000. Arch has not yet quantified the
impact of adopting SFAS No. 133 on its financial statements, however, adopting
SFAS No. 133 could increase volatility in earnings and other comprehensive
income.
29
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The majority of the Company's long-term debt is subject to fixed rates of
interest or interest rate protection. In the event that the interest rate on the
Company's non-fixed rate debt fluctuates by 10% in either direction, the Company
believes the impact on its results of operations would be immaterial. The
Company transacts infrequently in foreign currency and therefore is not exposed
to significant foreign currency market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in Item 14(a)(1) and (2) are
included in this Report beginning on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10 through 13 are incorporated by reference
to the Registrant's definitive Proxy Statement for its 1999 annual meeting of
stockholders scheduled to be held on May 18, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and 1998
Consolidated Statements of Operations for Each of the Three Years in
the Period Ended December 31, 1998
Consolidated Statements of Stockholders' Equity (Deficit) for Each of
the Three Years in the Period Ended December 31, 1998
Consolidated Statements of Cash Flows for Each of the Three Years in
the Period Ended December 31, 1998
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1998.
(c) Exhibits
The exhibits listed in the accompanying index to exhibits are filed as
part of this Annual Report on Form 10-K.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARCH COMMUNICATIONS GROUP, INC.
By: /s/ C. Edward Baker, Jr.
-------------------------------------
C. Edward Baker, Jr.
Chairman of the Board and Chief
Executive Officer
March 18, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ C. Edward Baker, Jr. Chairman of the Board and March 18, 1999
- --------------------------- Chief Executive Officer
C. Edward Baker, Jr. (principal executive officer)
/s/ John B. Saynor Executive Vice President, March 18, 1999
- --------------------------- Director
John B. Saynor
/s/ J. Roy Pottle Executive Vice President March 18, 1999
- --------------------------- and Chief Financial Officer
J. Roy Pottle (principal financial officer and
principal accounting officer)
/s/ R. Schorr Berman Director March 18, 1999
- ---------------------------
R. Schorr Berman
Director
- ---------------------------
James S. Hughes
/s/ John Kornreich Director March 18, 1999
- ---------------------------
John Kornreich
/s/ Allan L. Rayfield Director March 18, 1999
- ---------------------------
Allan L. Rayfield
/s/ John A. Shane Director March 18, 1999
- ---------------------------
John A. Shane
31
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants ................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 ............ F-3
Consolidated Statements of Operations for Each of the Three Years
in the Period Ended December 31, 1998 ................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for Each
of the Three Years in the Period Ended December 31, 1998 .............. F-5
Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 1998 ................................. F-6
Notes to Consolidated Financial Statements .............................. F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Arch Communications Group, Inc.:
We have audited the accompanying consolidated balance sheets of Arch
Communications Group, Inc. (a Delaware corporation) (the "Company") and
subsidiaries as of December 31, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1998. These consolidated
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and the schedule, based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Arch Communications Group, Inc. and subsidiaries as of December 31, 1997 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in Item
14(a)(2) is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. The schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 24, 1999
F-2
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1998
(in thousands, except share amounts)
<TABLE>
<CAPTION>
1997 1998
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 3,328 $ 1,633
Accounts receivable (less reserves of $5,744 and $6,583 in 1997 and
1998, respectively)............................................. 30,147 30,753
Inventories....................................................... 12,633 10,319
Prepaid expenses and other........................................ 4,917 8,007
----------- -----------
Total current assets.......................................... 51,025 50,712
----------- -----------
Property and equipment, at cost:
Land, buildings and improvements.................................. 10,089 10,480
Paging and computer equipment..................................... 361,713 400,312
Furniture, fixtures and vehicles.................................. 16,233 17,381
----------- -----------
388,035 428,173
Less accumulated depreciation and amortization.................... 146,542 209,128
------------ -----------
Property and equipment, net....................................... 241,493 219,045
------------ -----------
Intangible and other assets (less accumulated amortization of $260,932
and $372,122 in 1997 and 1998, respectively)........................ 728,202 634,528
----------- -----------
$ 1,020,720 $ 904,285
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt.............................. $ 24,513 $ 1,250
Accounts payable.................................................. 22,486 25,683
Accrued restructuring charge...................................... -- 11,909
Accrued expenses.................................................. 11,894 11,689
Accrued interest.................................................. 11,249 20,997
Customer deposits................................................. 6,150 4,528
Deferred revenue.................................................. 8,787 10,958
----------- -----------
Total current liabilities..................................... 85,079 87,014
----------- -----------
Long-term debt, less current maturities............................... 968,896 1,003,499
----------- -----------
Other long-term liabilities........................................... -- 27,235
----------- -----------
Commitments and contingencies Stockholders' equity (deficit):
Preferred stock--$.01 par value, authorized 10,000,000 shares; issued
250,000 shares ($26,030 aggregate liquidation preference)....... -- 3
Common stock--$.01 par value, authorized 75,000,000 shares, issued
and outstanding: 20,863,563 and 21,215,583 shares in 1997 and
1998, respectively.............................................. 209 212
Additional paid-in capital........................................ 351,210 378,077
Accumulated deficit............................................... (384,674) (591,755)
----------- -----------
Total stockholders' equity (deficit).......................... (33,255) (213,463)
----------- -----------
$ 1,020,720 $ 904,285
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Service, rental and maintenance revenues.................. $ 291,399 $ 351,944 $ 371,154
Product sales............................................. 39,971 44,897 42,481
---------- ---------- ----------
Total revenues....................................... 331,370 396,841 413,635
Cost of products sold..................................... (27,469) (29,158) (29,953)
---------- ---------- ----------
303,901 367,683 383,682
---------- ---------- ----------
Operating expenses:
Service, rental and maintenance........................ 64,957 79,836 80,782
Selling................................................ 46,962 51,474 49,132
General and administrative............................. 86,181 106,041 112,181
Depreciation and amortization.......................... 191,871 232,347 221,316
Restructuring charge................................... -- -- 14,700
---------- ---------- ----------
Total operating expenses............................. 389,971 469,698 478,111
---------- ---------- ----------
Operating income (loss)................................... (86,070) (102,015) (94,429)
Interest expense.......................................... (77,353) (98,063) (105,979)
Interest income........................................... 1,426 904 1,766
Equity in loss of affiliate............................... (1,968) (3,872) (5,689)
---------- ---------- ----------
Income (loss) before income tax benefit and
extraordinary item..................................... (163,965) (203,046) (204,331)
Benefit from income taxes................................. 51,207 21,172 --
---------- ---------- ----------
Income (loss) before extraordinary item................... (112,758) (181,874) (204,331)
Extraordinary charge from early
extinguishment of debt................................. (1,904) -- (1,720)
---------- ---------- ----------
Net income (loss)......................................... (114,662) (181,874) (206,051)
Accretion of redeemable preferred stock................... (336) (32) --
Preferred stock dividend.................................. -- -- (1,030)
---------- ---------- ----------
Net income (loss) applicable to common
stockholders........................................... $ (114,998) $ (181,906) $ (207,081)
========== ========== ==========
Basic/diluted income (loss) per common
share before extraordinary item........................ $ (5.53) $ (8.77) $ (9.78)
Extraordinary charge from early
extinguishment of debt per basic/diluted
common share........................................... $ (.09) $ -- $ (.08)
---------- ---------- ----------
Basic/diluted net income (loss) per common
share.................................................. $ (5.62) $ (8.77) $ (9.86)
========== ========== ==========
Basic/diluted weighted average number of
common shares outstanding.............................. 20,445,943 20,746,240 20,993,192
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Preferred Common Paid-in Accumulated Equity
Stock Stock Capital Deficit (Deficit)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ................... $ -- $ 197 $ 334,825 $ (88,138) $ 246,884
Exercise of options to purchase 169,308
shares of common stock .................. -- 2 1,469 -- 1,471
Issuance of 46,842 shares of common
stock under Arch's Employee Stock
Purchase Plan ........................... -- -- 373 -- 373
Issuance of 843,039 shares of common
stock upon conversion of convertible
subordinated debentures ................. -- 8 14,113 -- 14,121
Accretion of redeemable preferred stock ... -- -- (336) -- (336)
Net loss .................................. -- -- -- (114,662) (114,662)
--------- --------- --------- --------- ---------
Balance, December 31, 1996 ................... -- 207 350,444 (202,800) 147,851
Issuance of 151,343 shares of common
stock under Arch's Employee Stock
Purchase Plan ........................... -- 2 798 -- 800
Accretion of redeemable preferred stock ... -- -- (32) -- (32)
Net loss .................................. -- -- -- (181,874) (181,874)
--------- --------- --------- --------- ---------
Balance, December 31, 1997 ................... -- 209 351,210 (384,674) (33,255)
Exercise of options to purchase 94,032
shares of common stock .................. -- 1 293 -- 294
Issuance of 250,000 shares of preferred
stock ................................... 3 -- 24,997 -- 25,000
Issuance of 257,988 shares of common
stock under Arch's Employee Stock
Purchase Plan ........................... -- 2 547 -- 549
Preferred stock dividend .................. -- -- 1,030 (1,030) --
Net loss .................................. -- -- -- (206,051) (206,051)
--------- --------- --------- --------- ---------
Balance, December 31, 1998 ................... $ 3 $ 212 $ 378,077 $(591,755) $(213,463)
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................ $ (114,662) $ (181,874) $ (206,051)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ............................ 191,871 232,347 221,316
Deferred income tax benefit .............................. (51,207) (21,172) --
Extraordinary charge from early extinguishment of debt ... 1,904 -- 1,720
Equity in loss of affiliate .............................. 1,968 3,872 5,689
Accretion of discount on senior notes .................... 24,273 33,259 37,115
Gain on Tower Site Sale .................................. -- -- (2,500)
Accounts receivable loss provision ....................... 8,198 7,181 8,545
Changes in assets and liabilities, net of effect from
acquisitions of paging companies:
Accounts receivable .................................... (15,513) (11,984) (9,151)
Inventories ............................................ 1,845 (2,394) 2,314
Prepaid expenses and other ............................. 89 (386) (3,090)
Accounts payable and accrued expenses .................. (12,520) 3,683 24,649
Customer deposits and deferred revenue ................. 1,556 1,058 549
----------- ----------- -----------
Net cash provided by operating activities .................. 37,802 63,590 81,105
----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment, net ................. (138,899) (87,868) (79,249)
Additions to intangible and other assets ................. (26,307) (14,901) (33,935)
Net proceeds from Tower Site Sale ........................ -- -- 30,316
Acquisition of paging companies, net of cash acquired .... (325,420) -- --
----------- ----------- -----------
Net cash used for investing activities ..................... (490,626) (102,769) (82,868)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of long-term debt ............................... 676,000 91,000 463,239
Repayment of long-term debt .............................. (225,166) (49,046) (489,014)
Repayment of redeemable preferred stock .................. -- (3,744) --
Net proceeds from sale of preferred stock ................ -- -- 25,000
Net proceeds from sale of common stock ................... 1,844 800 843
----------- ----------- -----------
Net cash provided by financing activities .................. 452,678 39,010 68
----------- ----------- -----------
Net decrease in cash and cash equivalents .................. (146) (169) (1,695)
Cash and cash equivalents, beginning of period ............. 3,643 3,497 3,328
----------- ----------- -----------
Cash and cash equivalents, end of period ................... $ 3,497 $ 3,328 $ 1,633
=========== =========== ===========
Supplemental disclosure:
Interest paid ............................................ $ 48,905 $ 62,231 $ 57,151
=========== =========== ===========
Issuance of common stock for convertible debentures ...... $ 14,121 $ -- $ --
=========== =========== ===========
Accretion of redeemable preferred stock .................. $ 336 $ 32 $ --
=========== =========== ===========
Preferred stock dividend ................................. $ -- $ -- $ 1,030
=========== =========== ===========
Liabilities assumed in acquisition of paging companies ... $ 58,233 $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Organization--Arch Communications Group, Inc. ("Arch" or the "Company") is a
leading provider of wireless messaging services, primarily paging services, and
is the third largest paging company in the United States (based on units in
service).
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Revenue Recognition--Arch recognizes revenue under rental and service
agreements with customers as the related services are performed. Maintenance
revenues and related costs are recognized ratably over the respective terms of
the agreements. Sales of equipment are recognized upon delivery. Commissions are
recognized as an expense when incurred.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents--Cash equivalents include short-term, interest-bearing
instruments purchased with remaining maturities of three months or less. The
carrying amount approximates fair value due to the relatively short period to
maturity of these instruments.
Inventories--Inventories consist of new pagers which are held primarily for
resale. Inventories are stated at the lower of cost or market, with cost
determined on a first-in, first-out basis.
Property and Equipment--Pagers sold or otherwise retired are removed from the
accounts at their net book value using the first-in, first-out method. Property
and equipment is stated at cost and is depreciated using the straight-line
method over the following estimated useful lives:
Asset Classification Estimated Useful Life
-------------------- ---------------------
Buildings and improvements.................. 20 Years
Leasehold improvements...................... Lease Term
Pagers...................................... 3 Years
Paging and computer equipment............... 5-8 Years
Furniture and fixtures...................... 5-8 Years
Vehicles.................................... 3 Years
Depreciation and amortization expense related to property and equipment
totaled $87.5 million, $108.0 million and $101.1 million for the years ended
December 31, 1996, 1997 and 1998, respectively.
Intangible and Other Assets--Intangible and other assets, net of accumulated
amortization, are composed of the following (in thousands):
December 31,
1997 1998
---- ----
Goodwill..................................... $ 312,017 $ 271,808
Purchased FCC licenses....................... 293,922 256,519
Purchased subscriber lists................... 87,281 56,825
Deferred financing costs..................... 8,752 22,072
Investment in Benbow PCS Ventures, Inc....... 6,189 11,347
Investment in CONXUS Communications, Inc..... 6,500 6,500
Non-competition agreements................... 2,783 1,790
Other........................................ 10,758 7,667
--------- ---------
$ 728,202 $ 634,528
========= =========
F-7
<PAGE>
Amortization expense related to intangible and other assets totaled $104.4
million, $124.3 million and $120.2 million for the years ended December 31,
1996, 1997 and 1998, respectively.
Subscriber lists, Federal Communications Commission ("FCC") licenses and
goodwill are amortized over their estimated useful lives, ranging from five to
ten years using the straight-line method. Non-competition agreements are
amortized over the terms of the agreements using the straight-line method. Other
assets consist of contract rights, organizational and FCC application and
development costs which are amortized using the straight-line method over their
estimated useful lives not exceeding ten years. Development and start up costs
include nonrecurring, direct costs incurred in the development and expansion of
paging systems, and are amortized over a two-year period. In April 1998, the
Accounting Standards Executive Committee of the Financial Accounting Standards
Board issued Statement of Position 98-5 ("SOP 98-5") "Reporting on the Costs of
Start-Up Activities". SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. Arch adopted SOP 98-5 effective
January 1, 1999. Initial application of SOP 98-5 will be reported as the
cumulative effect of a change in accounting principle.
Deferred financing costs incurred in connection with Arch's credit agreements
(see Note 3) are being amortized over periods not to exceed the terms of the
related agreements. As credit agreements are amended and restated, unamortized
deferred financing costs are written off as an extraordinary charge. During 1996
and 1998, charges of $1.9 million and $1.7 million, respectively, were
recognized in connection with the closing of new credit facilities.
In connection with Arch's May 1996 acquisition of Westlink Holdings, Inc.
("Westlink") (see Note 2), Arch acquired Westlink's 49.9% share of the capital
stock of Benbow PCS Ventures, Inc. ("Benbow"). Benbow has exclusive rights to a
50kHz outbound/12.5kHz inbound narrowband personal communications license in
each of the central and western regions of the United States. Arch is obligated,
to the extent such funds are not available to Benbow from other sources, and
subject to the approval of Arch's designee on Benbow's Board of Directors, to
advance Benbow sufficient funds to service debt obligations incurred by Benbow
in connection with its acquisition of its narrowband PCS licenses and to finance
the build out of a regional narrowband PCS system. Arch's investment in Benbow
is accounted for under the equity method whereby Arch's share of Benbow's
losses, since the acquisition date of Westlink, are recognized in Arch's
accompanying consolidated statements of operations under the caption equity in
loss of affiliate.
On November 8, 1994, CONXUS Communications, Inc. ("CONXUS"), formerly PCS
Development Corporation, was successful in acquiring the rights to a two-way
paging license in five designated regions in the United States in the FCC
narrowband wireless spectrum auction. As of December 31, 1998, Arch's investment
in CONXUS totaled $6.5 million and is accounted for under the cost method.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets To
Be Disposed Of" Arch evaluates the recoverability of its carrying value of the
Company's long-lived assets and certain intangible assets based on estimated
undiscounted cash flows to be generated from each of such assets as compared to
the original estimates used in measuring the assets. To the extent impairment is
identified, Arch reduces the carrying value of such impaired assets. To date,
Arch has not had any such impairments.
Fair Value of Financial Instruments--Arch's financial instruments, as defined
under SFAS No. 107 "Disclosures about Fair Value of Financial Instruments",
include its cash, its debt financing and interest rate protection agreements.
The fair value of cash is equal to the carrying value at December 31, 1997 and
1998.
As discussed in Note 3, Arch's debt financing primarily consists of (1)
senior bank debt, (2) fixed rate senior notes and (3) convertible subordinated
debentures. Arch considers the fair value of senior bank debt to be equal to the
carrying value since the related facilities bear a current market rate of
interest. Arch's fixed rate senior notes are traded publicly. The following
table depicts the fair value of the fixed rate senior notes and the convertible
subordinated debentures based on the current market quote as of December 31,
1997 and 1998 (in thousands):
F-8
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
--------------------- ----------------------
Carrying Carrying
Description Value Fair Value Value Fair Value
----------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
10 7/8% Senior Discount Notes due 2008....... $ 332,532 $ 288,418 $ 369,506 $ 221,704
9 1/2% Senior Notes due 2004................. 125,000 122,488 125,000 112,500
14% Senior Notes due 2004.................... 100,000 112,540 100,000 103,000
12 3/4% Senior Notes due 2007................ -- -- 127,604 127,604
6 3/4% Convertible Subordinated Debentures
due 2003................................... 13,364 7,968 13,364 6,682
</TABLE>
Arch had off-balance-sheet interest rate protection agreements consisting of
interest rate swaps and interest rate caps with notional amounts of $140.0
million and $80.0 million, respectively, at December 31, 1997 and $265.0 million
and $40.0 million, respectively, at December 31, 1998. The fair values of the
interest rate swaps and interest rate caps were $47,000 and $9,000,
respectively, at December 31, 1997. The cost to terminate the outstanding
interest rate swaps and interest rate caps at December 31, 1998 would have been
$6.4 million. See Note 3.
Basic/Diluted Net Income (Loss) Per Common Share -- In February 1997, the
Financial Accounting Standards Board issued SFAS No. 128 "Earnings Per Share".
The Company adopted this standard in 1997. The adoption of this standard did not
have an effect on the Company's financial position, results of operations or
income (loss) per share. Basic net income (loss) per common share is based on
the weighted average number of common shares outstanding. Shares of stock
issuable pursuant to stock options and upon conversion of the subordinated
debentures (see Note 3) or the Series C Preferred Stock (see Note 4) have not
been considered, as their effect would be anti-dilutive and thus diluted net
income (loss) per common share is the same as basic net income (loss) per common
share.
Reclassifications--Certain amounts of prior periods were reclassified to
conform with the 1998 presentation.
2. Acquisitions
In May 1996, Arch completed its acquisition of all the outstanding capital
stock of Westlink for $325.4 million in cash, including direct transaction
costs. The purchase price was allocated based on the fair values of assets
acquired and liabilities assumed (including deferred income taxes arising in
purchase accounting), which amounted to $383.6 million and $58.2 million,
respectively.
This acquisition has been accounted for as a purchase, and the results of its
operations have been included in the consolidated financial statements from the
date of the acquisition. Goodwill resulting from the acquisition is being
amortized over a ten-year period using the straight-line method.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition had occurred at the beginning of the period
presented, after giving effect to certain adjustments, including depreciation
and amortization of acquired assets and interest expense on acquisition debt.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the acquisition
been made at the beginning of the period presented, or of results that may occur
in the future.
Year Ended
December 31, 1996
-----------------
(unaudited and in thousands
except for per share
amounts)
Revenues.............................................. $ 358,900
Income (loss) before extraordinary item............... (128,444)
Net income (loss)..................................... (130,348)
Basic/diluted net income (loss) per common share...... (6.39)
F-9
<PAGE>
3. Long-term Debt
Long-term debt consisted of the following (in thousands):
December 31,
1997 1998
---------- ----------
Senior Bank Debt ..................... $ 422,500 $ 267,000
10 7/8% Senior Discount Notes due 2008 332,532 369,506
9 1/2% Senior Notes due 2004 ......... 125,000 125,000
14% Senior Notes due 2004 ............ 100,000 100,000
12 3/4% Senior Notes due 2007 ........ -- 127,604
Convertible Subordinated Debentures .. 13,364 13,364
Other ................................ 13 2,275
---------- ----------
993,409 1,004,749
Less-- Current maturities ............ 24,513 1,250
---------- ----------
Long-term debt ....................... $ 968,896 $1,003,499
========== ==========
Senior Bank Debt--The Company, through its operating subsidiary, Arch Paging,
Inc. ("API") entered into senior secured revolving credit and term loan
facilities in the aggregate amount of $400.0 million (collectively, the "API
Credit Facility") consisting of (i) a $175.0 million reducing revolving credit
facility (the "Tranche A Facility"), (ii) a $100.0 million 364-day revolving
credit facility under which the principal amount outstanding on June 27, 1999
will convert to a term loan (the "Tranche B Facility") and (iii) a $125.0
million term loan (the "Tranche C Facility").
The Tranche A Facility will be subject to scheduled quarterly reductions
commencing on September 30, 2000 and will mature on June 30, 2005. The term loan
portion of the Tranche B Facility will be amortized in quarterly installments
commencing September 30, 2000, with an ultimate maturity date of June 30, 2005.
The Tranche C Facility will be amortized in annual installments commencing
December 31, 1999, with an ultimate maturity date of June 30, 2006.
API's obligations under the API Credit Facility are secured by its pledge of
its interests in Arch LLC and Arch Connecticut Valley, Inc. The API Credit
Facility is guaranteed by Arch, Arch Communications, Inc. ("ACI") and Arch LLC
and Arch Connecticut Valley, Inc. Arch's guarantee is secured by a pledge of
Arch's stock and notes in ACI, and the guarantees of Arch LLC and Arch
Connecticut Valley, Inc. are secured by a security interest in those assets that
were pledged under ACE's former credit facility.
Borrowings under the API Credit Facility bear interest based on a reference
rate equal to either the Bank's Alternate Base Rate or LIBOR, in each case plus
a margin based on ACI's or API's ratio of total debt to annualized Adjusted
EBITDA.
The API Credit Facility requires payment of fees on the daily average amount
available to be borrowed under the Tranche A Facility and the Tranche B
Facility, which fees vary depending on ACI's or API's ratio of total debt to
annualized Adjusted EBITDA.
The API Credit Facility requires that at least 50% of total ACI debt,
including outstanding borrowings under the API Credit Facility, be subject to a
fixed interest rate or interest rate protection agreements. Entering into
interest rate cap and swap agreements involves both the credit risk of dealing
with counterparties and their ability to meet the terms of the contracts and
interest rate risk. In the event of nonperformance by the counterparty to these
interest rate protection agreements, API would be subject to the prevailing
interest rates specified in the API Credit Facility.
Under the interest rate swap agreements, the Company will pay the difference
between LIBOR and the fixed swap rate if the swap rate exceeds LIBOR, and the
Company will receive the difference between LIBOR and the fixed swap rate if
LIBOR exceeds the swap rate. Settlement occurs on the quarterly reset dates
specified by the terms of the contracts. The notional principal amount of the
interest rate swaps outstanding was $65.0 million at December 31, 1998. The
weighted average fixed payment rate was 5.93%, while the weighted average rate
of variable interest payments under the API Credit Facility was 5.30% at
December 31, 1998. At December 31, 1997 and 1998, the Company had a net
receivable of $18,000 and a net payable of $47,000, respectively, on the
interest rate swaps.
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<PAGE>
The interest rate cap agreements will pay the Company the difference between
LIBOR and the cap level if LIBOR exceeds the cap levels at any of the quarterly
reset dates. If LIBOR remains below the cap level, no payment is made to the
Company. The total notional amount of the interest rate cap agreements was $40.0
million with cap levels between 7.5% and 8% at December 31, 1998. The
transaction fees for these instruments are being amortized over the terms of the
agreements.
The API Credit Facility contains restrictions that limit, among other things:
additional indebtedness and encumbrances on assets; cash dividends and other
distributions; mergers and sales of assets; the repurchase or redemption of
capital stock; investments; acquisitions that exceed certain dollar limitations
without the lenders' prior approval; and prepayment of indebtedness other than
indebtedness under the API Credit Facility. In addition, the API Credit Facility
requires API and its subsidiaries to meet certain financial covenants, including
covenants with respect to ratios of EBITDA to fixed charges, EBITDA to debt
service, EBITDA to interest service and total indebtedness to EBITDA. As of
December 31, 1998, API and its operating subsidiaries were in compliance with
the covenants of the API Credit Facility.
As of December 31, 1998, $267.0 million was outstanding and $93.5 million was
available under the API Credit Facility. At December 31, 1998, such advances
bore interest at an average annual rate of 8.45%.
On November 16, 1998, the lenders to API approved an increase in API's
existing credit facility from $400.0 million to $600.0 million, subject to
completing the MobileMedia Merger and certain other conditions. The increase of
$200.0 million (the "API Credit Facility Increase") was to fund a portion of the
cash necessary for Arch to complete the MobileMedia Merger. The API Credit
Facility Increase was to be provided by four of API's existing lenders, provided
the MobileMedia Transactions were completed prior to March 31, 1999. As a result
of the resolicitation of votes of the holders of Class 6 creditors, it is not
possible to consummate the MobileMedia Merger by March 31, 1999. The four API
lenders that were to fund the API Credit Facility Increase have indicated their
willingness to seek approval to extend $135.0 million of the API Credit Facility
Increase through June 30, 1999, subject to formal approval, definitive
documentation and negotiation of certain terms.
Senior Notes--On March 12, 1996, Arch completed a public offering of 10 7/8%
Senior Discount Notes due 2008 (the "Senior Discount Notes") in the aggregate
principal amount at maturity of $467.4 million ($275.0 million initial accreted
value). Interest does not accrue on the Senior Discount Notes prior to March 15,
2001. Commencing September 15, 2001, interest on the Senior Discount Notes is
payable semi-annually at an annual rate of 10 7/8%. The $266.1 million net
proceeds from the issuance of the Senior Discount Notes, after deducting
underwriting discounts and commissions and offering expenses, were used
principally to fund a portion of the purchase price of Arch's acquisition of
Westlink (see Note 2).
Interest on ACI's 14% Senior Notes due 2004 (the "ACI 14% Notes") and ACI's
9 1/2% Senior Notes due 2004 (the "ACI 9 1/2% Notes") (collectively, the "Senior
Notes") is payable semiannually. The Senior Discount Notes and Senior Notes
contain certain restrictive and financial covenants, which, among other things,
limit the ability of Arch or ACI to: incur additional indebtedness; pay
dividends; grant liens on its assets; sell assets; enter into transactions with
related parties; merge, consolidate or transfer substantially all of its assets;
redeem capital stock or subordinated debt; and make certain investments.
Arch has entered into interest rate swap agreements in connection with the
ACI 14% Notes. Under the interest rate swap agreements, the Company has
effectively reduced the interest rate on the ACI 14% Notes from 14% to the fixed
swap rate of 9.45%. In the event of nonperformance by the counterparty to these
interest rate protection agreements, the Company would be subject to the 14%
interest rate specified on the notes. As of December 31, 1998, the Company had
received $2,275,000 in excess of the amounts paid under the swap agreements,
which is included in long-term debt in the accompanying balance sheet. At
December 31, 1998, the Company had a net receivable of $733,500 on these
interest rate swaps.
On June 29, 1998, ACI issued and sold $130.0 million principal amount of
12 3/4% Senior Notes due 2007 (the "ACI 12 3/4% Notes") for net proceeds of
$122.6 million (after deducting the discount to the initial purchasers and
estimated offering expenses payable by ACI). The ACI 12 3/4% Notes were sold at
an initial price to investors of 98.049%. The ACI 12 3/4% Notes mature on July
1, 2007 and bear interest at a rate of 12 3/4% per annum, payable semi-annually
in arrears on January 1 and July 1 of each year, commencing January 1, 1999.
The indenture under which the ACI 12 3/4% Notes were issued ("the Indenture")
contains certain covenants that, among other things, limit the ability of ACI to
incur additional indebtedness, issue preferred stock, pay dividends or make
other distributions, repurchase Capital Stock (as defined in the Indenture),
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<PAGE>
repay subordinated indebtedness or make other Restricted Payments (as defined in
the Indenture), create certain liens, enter into certain transactions with
affiliates, sell assets, issue or sell Capital Stock of ACI's Restricted
Subsidiaries (as defined in the Indenture) or enter into certain mergers and
consolidations.
Convertible Subordinated Debentures--On March 6, 1996, the holders of $14.1
million principal amount of Arch's 6 3/4% Convertible Subordinated Debentures
due 2003 ("Arch Convertible Debentures") elected to convert their Arch
Convertible Debentures into Arch common stock at a conversion price of $16.75
per share and received approximately 843,000 shares of Arch common stock
together with a $1.6 million cash premium.
Interest on the remaining outstanding Arch Convertible Debentures is payable
semiannually on June 1 and December 1. The Arch Convertible Debentures are
unsecured and are subordinated to all existing indebtedness of Arch.
The Arch Convertible Debentures are redeemable, at the option of Arch, in
whole or in part, at certain prices declining annually to 100% of the principal
amount at maturity plus accrued interest. The Arch Convertible Debentures also
are subject to redemption at the option of the holders, at a price of 100% of
the principal amount plus accrued interest, upon the occurrence of certain
events.
The Arch Convertible Debentures are convertible at their principal amount
into shares of Arch's common stock at any time prior to redemption or maturity
at an initial conversion price of $16.75 per share, subject to adjustment.
Maturities of Debt--Scheduled long-term debt maturities at December 31, 1998,
are as follows (in thousands):
Year Ending December 31,
------------------------
1999 ......................... $ 1,250
2000 ......................... 17,725
2001 ......................... 29,650
2002 ......................... 29,650
2003 ......................... 43,014
Thereafter ................... 883,460
----------
$1,004,749
4. Redeemable Preferred Stock and Stockholders' Equity
Redeemable Preferred Stock--In connection with the its merger (the "USAM
Merger") with USA Mobile Communications Holdings, Inc. ("USA Mobile"), Arch
assumed the obligations associated with 22,530 outstanding shares of Series A
Redeemable Preferred Stock issued by USA Mobile. The preferred stock is recorded
at its accreted redemption value, based on 10% annual accretion through the
redemption date. On January 30, 1997, all outstanding preferred stock was
redeemed for $3.7 million in cash.
Redeemable Series C Cumulative Convertible Preferred Stock--On June 29, 1998,
two partnerships managed by Sandler Capital Management Company, Inc., an
investment management firm ("Sandler"), together with certain other private
investors, made an equity investment in Arch of $25.0 million in the form of
Series C Convertible Preferred Stock of Arch ("Series C Preferred Stock"). The
Series C Preferred Stock: (i) is convertible into Common Stock of Arch at an
initial conversion price of $5.50 per share, subject to certain adjustments;
(ii) bears dividends at an annual rate of 8.0%, (A) payable quarterly in cash
or, at Arch's option, through the issuance of shares of Arch's Common Stock
valued at 95% of the then prevailing market price or (B) if not paid quarterly,
accumulating and payable upon redemption or conversion of the Series C Preferred
Stock or liquidation of Arch; (iii) permits the holders after seven years to
require Arch, at Arch's option, to redeem the Series C Preferred Stock for cash
or convert such shares into Arch's Common Stock valued at 95% of the then
prevailing market price of Arch's Common Stock; (iv) is subject to redemption
for cash or conversion into Arch's Common Stock at Arch's option in certain
circumstances; (v) in the event of a "Change of Control" as defined in the
indenture governing Arch's 10 7/8% Senior Discount Notes due 2008 (the "Senior
Discount Notes Indenture"), requires Arch, at its option, to redeem the Series C
Preferred Stock for cash or convert such shares into Arch's Common Stock valued
at 95% of the then prevailing market price of Arch's Common Stock, with such
cash redemption or conversion being at a price equal to 105% of the sum of the
original purchase price plus accumulated dividends; (vi) limits certain mergers
or asset sales by Arch; (vii) so long as at least 50% of the Series C Preferred
Stock remains outstanding, limits the incurrence of indebtedness and "restricted
F-12
<PAGE>
payments" in the same manner as contained in the Senior Discount Notes
Indenture; and (viii) has certain voting and preemptive rights. Upon an event of
redemption or conversion, Arch currently intends to convert such Series C
Preferred Stock into shares of Arch Common Stock.
Stock Options--Arch has a 1989 Stock Option Plan (the "1989 Plan") and a 1997
Stock Option Plan (the "1997 Plan"), which provide for the grant of incentive
and nonqualified stock options to key employees, directors and consultants to
purchase Arch's common stock. Incentive stock options are granted at exercise
prices not less than the fair market value on the date of grant. Options
generally vest over a five-year period from the date of grant with the first
such vesting (20% of granted options) occurring one year from the date of grant
and continuing ratably at 5% on a quarterly basis thereafter. However, in
certain circumstances, options may be immediately exercised in full. Options
generally have a duration of 10 years. The 1989 Plan provides for the granting
of options to purchase a total of 1,128,944 shares of common stock. All
outstanding options on September 7, 1995, under the 1989 Plan, became fully
exercisable and vested as a result of the USAM Merger. The 1997 Plan provides
for the granting of options to purchase a total of 6,000,000 shares of common
stock.
Effective October 23, 1996, the Compensation Committee of the Board of
Directors of Arch authorized the grant of new options to each employee who had
an outstanding option at a price greater than $12.50 (the fair market value of
Arch's common stock on October 23, 1996). The new option would be for the total
number of shares (both vested and unvested) subject to each employee's
outstanding stock option agreement(s). As a result of this action 424,206
options were terminated and regranted at a price of $12.50. The Company treated
this as a cancellation and reissuance under APB opinion No. 25, "Accounting for
Stock Issued to Employees".
As a result of the USAM Merger, Arch assumed a stock option plan originally
adopted by USA Mobile in 1994 and amended and restated on January 26, 1995 (the
"1994 Plan"), which provides for the grant of up to 601,500 options to purchase
Arch's common stock. Under the 1994 Plan, incentive stock options may be granted
to employees and nonqualified stock options may be granted to employees,
directors and consultants. Incentive stock options are granted at exercise
prices not less than the fair market value on the date of grant. Option duration
and vesting provisions are similar to the 1989 Plan. All outstanding options
under the 1994 Plan became fully exercisable and vested as a result of the USAM
Merger.
In January 1995, Arch adopted a 1995 Outside Directors' Stock Option Plan
(the "1995 Directors' Plan"), which terminated upon completion of the USAM
Merger. Prior to termination of the 1995 Directors' Plan, 15,000 options were
granted at an exercise price of $18.50 per share. Options have a duration of ten
years and vest over a five-year period from the date of grant with the first
such vesting (20% of granted options) occurring one year from the date of grant
and continuing ratably at 5% on a quarterly basis thereafter.
As a result of the USAM Merger, Arch assumed from USA Mobile the Non-Employee
Directors' Stock Option Plan (the "Outside Directors Plan"), which provides for
the grant of up to 80,200 options to purchase Arch's common stock to
non-employee directors of Arch. Outside directors receive a grant of 3,000
options annually under the Outside Directors Plan, and newly elected or
appointed outside directors receive options to purchase 3,000 shares of common
stock as of the date of their initial election or appointment. Options are
granted at fair market value of Arch's common stock on the date of grant.
Options have a duration of ten years and vest over a three-year period from the
date of grant with the first such vesting (25% of granted options) occurring on
the date of grant and future vesting of 25% of granted options occurring on each
of the first three anniversaries of the date of grant.
On December 16, 1997, the Compensation Committee of the Board of Directors of
Arch authorized the Company to offer an election to its employees who had
outstanding options at a price greater than $5.06 to cancel such options and
accept new options at a lower price. In January 1998, as a result of this
election by certain of its employees, the Company canceled 1,083,216 options
with exercise prices ranging from $5.94 to $20.63 and granted the same number of
new options with an exercise price of $5.06 per share, the fair market value of
the stock on December 16, 1997.
On December 29, 1997, Arch adopted a Deferred Compensation Plan for
Nonemployee Directors. Under this plan, outside directors may elect to defer,
for a specified period of time, receipt of some or all of the annual and meeting
fees which would otherwise be payable for service as a director. A portion of
the deferred compensation may be converted into phantom stock units, at the
election of the director. The number of phantom stock units granted equals the
amount of compensation to be deferred as phantom stock divided by the fair value
of Arch's common stock on the date the compensation would have otherwise been
paid. At the end of the deferral period, the phantom stock units will be
converted to cash based on the fair market value of the Company's common stock
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<PAGE>
on the date of distribution. Deferred compensation is expensed when earned.
Changes in the value of the phantom stock units are recorded as income/expense
based on the fair market value of the Company's common stock.
The following table summarizes the activity under Arch's stock option plans
for the periods presented:
Weighted
Average
Number of Exercise
Options Price
Options Outstanding at December 31, 1995 ....... 1,005,755 $13.02
Granted ................................ 695,206 15.46
Exercised .............................. (169,308) 8.69
Terminated ............................. (484,456) 21.60
---------- ------
Options Outstanding at December 31, 1996 ....... 1,047,197 11.37
Granted ................................ 500,394 6.68
Exercised .............................. -- --
Terminated ............................. (186,636) 10.65
---------- ------
Options Outstanding at December 31, 1997 ....... 1,360,955 9.74
Granted ................................ 1,968,337 4.76
Exercised .............................. (94,032) 3.13
Terminated ............................. (1,290,407) 9.51
---------- ------
Options Outstanding at December 31, 1998 ....... 1,944,853 $ 5.17
========== ======
Options Exercisable at December 31, 1998 ....... 333,541 $ 6.92
========== ======
The following table summarizes the options outstanding and options
exercisable by price range at December 31, 1998:
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
$ 1.44 - $ 4.13 162,533 9.38 $ 3.36 4,500 $ 1.89
4.53 - 4.53 511,201 9.17 4.53 -- --
4.56 - 4.94 152,625 9.00 4.91 6,625 4.59
5.06 - 5.06 969,057 9.04 5.06 231,827 5.06
6.25 - 27.56 149,437 7.02 10.29 90,589 12.11
--------------- --------- ---- ----- ------- ------
$ 1.44 - $27.56 1,944,853 8.94 $ 5.17 333,541 $ 6.92
=============== ========= ==== ====== ======= ======
Employee Stock Purchase Plans--On May 28, 1996, the stockholders approved the
1996 Employee Stock Purchase Plan (the "1996 ESPP"). The 1996 ESPP allows
eligible employees the right to purchase common stock, through payroll
deductions not exceeding 10% of their compensation, at the lower of 85% of the
market price at the beginning or the end of each six-month offering period.
During 1996, 1997 and 1998, 46,842, 151,343 and 257,988 shares were issued at an
average price per share of $7.97, $5.29 and $2.13, respectively. At December 31,
1998, 43,827 shares are available for future issuance.
On January 26, 1999, the stockholders approved the 1999 Employee Stock
Purchase Plan ( the "1999 ESPP"). The 1999 ESPP allows eligible employees the
right to purchase common stock, through payroll deductions not exceeding 10% of
their compensation, at the lower of 85% of the market price at the beginning or
the end of each six-month offering period. The stockholders authorized 1,500,000
shares for future issuance under this plan.
Accounting for Stock-Based Compensation--Arch accounts for its stock option
and stock purchase plans under APB Opinion No. 25 "Accounting for Stock Issued
to Employees". Since all options have been issued at a grant price equal to fair
market value, no compensation cost has been recognized in the Statement of
Operations. Had compensation cost for these plans been determined consistent
with SFAS No. 123, "Accounting for Stock-Based Compensation", Arch's net income
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(loss) and income (loss) per share would have been increased to the following
pro forma amounts:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1997 1998
----------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net income (loss): As reported $ (114,662) $ (181,874) $ (203,957)
Pro forma (115,786) (183,470) (205,971)
Basic net income (loss) per common share: As reported (5.62) (8.77) (9.76)
Pro forma (5.68) (8.85) (9.86)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to the
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model. In computing these pro forma amounts, Arch
has assumed risk-free interest rates of 4.5% - 6%, an expected life of 5 years,
an expected dividend yield of zero and an expected volatility of 50% - 85%.
The weighted average fair values (computed consistent with SFAS No. 123) of
options granted under all plans in 1996, 1997 and 1998 were $4.95, $3.37 and
$2.78, respectively. The weighted average fair value of shares sold under the
ESPP in 1996, 1997 and 1998 was $5.46, $2.83 and $1.88, respectively.
Stockholders Rights Plan--Upon completion of the USAM Merger, Arch's existing
stockholders rights plan was terminated. In October 1995, Arch's Board of
Directors adopted a new stockholders rights plan (the "Rights") and declared a
dividend of one preferred stock purchase right (a "Right") for each outstanding
share of common stock to stockholders of record at the close of business on
October 25, 1995. Each Right entitles the registered holder to purchase from
Arch one one-thousandth of a share of Series B Junior Participating Preferred
Stock, at a cash purchase price of $150, subject to adjustment. Pursuant to the
Plan, the Rights automatically attach to and trade together with each share of
common stock. The Rights will not be exercisable or transferable separately from
the shares of common stock to which they are attached until the occurrence of
certain events. The Rights will expire on October 25, 2005, unless earlier
redeemed or exchanged by Arch in accordance with the Plan.
5. Income Taxes
Arch accounts for income taxes under the provisions of SFAS No. 109
"Accounting for Income Taxes". Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities, given the provisions of enacted laws.
The components of the net deferred tax asset (liability) recognized in the
accompanying consolidated balance sheets at December 31, 1997 and 1998 are as
follows (in thousands):
1997 1998
---- ----
Deferred tax assets ............... $ 134,944 $ 179,484
Deferred tax liabilities .......... (90,122) (67,652)
--------- ---------
44,822 111,832
Valuation allowance ............... (44,822) (111,832)
--------- ---------
$ -- $ --
========= =========
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<PAGE>
The approximate effect of each type of temporary difference and carryforward
at December 31, 1997 and 1998 is summarized as follows (in thousands):
1997 1998
--------- ---------
Net operating losses..................... $ 106,214 $ 128,213
Intangibles and other assets............. (87,444) (62,084)
Depreciation of property and equipment... 24,388 39,941
Accruals and reserves.................... 1,664 5,762
--------- ---------
44,822 111,832
Valuation allowance...................... (44,822) (111,832)
--------- ---------
$ -- $ --
========= =========
The effective income tax rate differs from the statutory federal tax rate
primarily due to the nondeductibility of goodwill amortization and the inability
to recognize the benefit of current net operating loss ("NOL") carryforwards.
The NOL carryforwards expire at various dates through 2013. The Internal Revenue
Code contains provisions that may limit the NOL carryforwards available to be
used in any given year if certain events occur, including significant changes in
ownership, as defined.
The Company has established a valuation reserve against its net deferred tax
asset until it becomes more likely than not that this asset will be realized in
the foreseeable future.
6. Commitments and Contingencies
In the ordinary course of business, the Company and its subsidiaries are
defendants in a variety of judicial proceedings. In the opinion of management,
there is no proceeding pending, or to the knowledge of management threatened,
which, in the event of an adverse decision, would result in a material adverse
change in the financial condition of the Company.
Arch has operating leases for office and transmitting sites with lease terms
ranging from one month to approximately ten years. In most cases, Arch expects
that, in the normal course of business, leases will be renewed or replaced by
other leases.
Future minimum lease payments under noncancellable operating leases at
December 31, 1998 are as follows (in thousands):
Year Ending December 31,
------------------------
1999 ......................... $21,372
2000 ......................... 13,826
2001 ......................... 8,853
2002 ......................... 6,026
2003 ......................... 2,495
Thereafter ................... 1,516
-------
Total ................... $54,088
=======
Total rent expense under operating leases for the years ended December 31,
1996, 1997 and 1998 approximated $14.7 million, $19.8 million and $19.6 million,
respectively.
7. Employee Benefit Plans
Retirement Savings Plan--Arch has a retirement savings plan, qualifying under
Section 401(k) of the Internal Revenue Code covering eligible employees, as
defined. Under the plan, a participant may elect to defer receipt of a stated
percentage of the compensation which would otherwise be payable to the
participant for any plan year (the deferred amount) provided, however, that the
deferred amount shall not exceed the maximum amount permitted under Section
401(k) of the Internal Revenue Code. The plan provides for employer matching
contributions. Matching contributions for the years ended December 31, 1996,
1997 and 1998 approximated $217,000, $302,000 and $278,000, respectively.
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<PAGE>
8. Tower Site Sale
In April 1998, Arch announced an agreement to sell certain of its tower site
assets (the "Tower Site Sale") for approximately $38.0 million in cash (subject
to adjustment), of which $1.3 million was paid to entities affiliated with
Benbow in payment for certain assets owned by such entities and included in the
Tower Site Sale. In the Tower Site Sale, Arch is selling communications towers,
real estate, site management contracts and/or leasehold interests involving 133
sites in 22 states and will rent space on the towers on which it currently
operates communications equipment to service its own paging network. Arch used
its net proceeds from the Tower Site Sale to repay indebtedness under the API
Credit Facility. Arch held the initial closing of the Tower Site Sale on June
26, 1998 with gross proceeds to Arch of approximately $12.0 million (excluding
$1.3 million which was paid to entities affiliated with Benbow for certain
assets which such entities sold as part of this transaction) and held a second
closing on September 29, 1998 with gross proceeds to Arch of approximately $20.4
million.
Arch entered into options to repurchase each site and until this continuing
involvement ends the gain is deferred and included in other long-term
liabilities. At December 31, 1998, Arch had sold 117 of the 133 sites, which
resulted in a total gain of approximately $23.5 million and through December 31,
1998 approximately $2.5 million of this gain had been recognized in the
statement of operations and is included in operating income.
9. Divisional Reorganization
In June 1998, Arch's Board of Directors approved a reorganization of Arch's
operations (the "Divisional Reorganization"). As part of the Divisional
Reorganization, which is being implemented over a period of 18 to 24 months,
Arch has consolidated its former Midwest, Western and Northern divisions into
four existing operating divisions and is in the process of consolidating certain
regional administrative support functions, such as customer service,
collections, inventory and billing, to reduce redundancy and take advantage of
various operating efficiencies. In connection with the Divisional
Reorganization, Arch (i) anticipates a net reduction of approximately 10% of its
workforce, (ii) is closing certain office locations and redeploying other assets
and (iii) recorded a restructuring charge of $14.7 million, or $0.70 per share
(basic and diluted) in 1998. The restructuring charge consisted of approximately
(i) $9.7 million for employee severance, (ii) $3.5 million for lease obligations
and terminations and (iii) $1.5 million of other costs.
The provision for lease obligations and terminations relates primarily to
future lease commitments on local, regional and divisional office facilities
that will be closed as part of the Divisional Reorganization. The charge
represents future lease obligations, on such leases past the dates the offices
will be closed by the Company, or for certain leases, the cost of terminating
the leases prior to their scheduled expiration. Cash payments on the leases and
lease terminations will occur over the remaining lease terms, the majority of
which expire prior to 2001.
Through the elimination of certain local and regional administrative
operations and the consolidation of certain support functions, the Company will
eliminate approximately 280 net positions. As a result of eliminating these
positions, the Company will involuntarily terminate an estimated 900 personnel.
The majority of the positions to be eliminated will be related to customer
service, collections, inventory and billing functions in local and regional
offices which will be closed as a result of the Divisional Reorganization. As of
December 31, 1998, 217 employees had been terminated due to the Divisional
Reorganization. The majority of the remaining severance and benefits costs to be
paid by the Company will be paid during 1999.
The Company's restructuring activity as of December 31, 1998 is as follows
(in thousands):
Reserve
Initially Utilization of Remaining
Established Reserve Reserve
----------- ------- -------
Severance costs ......... $ 9,700 $ 2,165 $ 7,535
Lease obligation costs .. 3,500 366 3,134
Other costs ............. 1,500 260 1,240
------- ------- -------
Total ............. $14,700 $ 2,791 $11,909
======= ======= =======
F-17
<PAGE>
10. Segment Reporting
The Company operates in one industry: providing wireless messaging services.
On December 31, 1998, the Company operated approximately 175 retail stores in 35
states of the United States.
11. Quarterly Financial Results (Unaudited)
Quarterly financial information for the years ended December 31, 1997 and
1998 is summarized below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Revenues........................................... $ 95,539 $ 98,729 $ 101,331 $ 101,242
Operating income (loss)............................ (26,632) (29,646) (27,208) (18,529)
Net income (loss).................................. (45,815) (49,390) (47,645) (39,024)
Basic net income (loss) per common share:
Net income (loss)............................... (2.21) (2.38) (2.29) (1.88)
Year Ended December 31, 1998:
Revenues........................................... $ 102,039 $ 103,546 $ 104,052 $ 103,998
Operating income (loss)............................ (19,418) (35,356) (20,783) (18,872)
Income (loss) before extraordinary item............ (45,839) (62,277) (47,994) (48,221)
Extraordinary charge............................... -- (1,720) -- --
Net income (loss).................................. (45,839) (63,997) (47,994) (48,221)
Basic net income (loss) per common share:
Income (loss) before extraordinary item......... (2.20) (2.97) (2.30) (2.31)
Extraordinary charge............................ -- (.08) -- --
Net income (loss)............................... (2.20) (3.05) (2.30) (2.31)
</TABLE>
F-18
<PAGE>
SCHEDULE II
ARCH COMMUNICATIONS GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1997 and 1998
(in thousands)
<TABLE>
<CAPTION>
Balance at Other Balance
Beginning Charged to Additions to at End of
Allowance for Doubtful Accounts of Period Expense Allowance(1) Write-Offs Period
------------------------------- --------- ------- ------------ ---------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996............. $ 2,125 $ 8,198 $ 1,757 $ (7,969) $ 4,111
======== ======= ======= ======== =======
Year ended December 31, 1997............. $ 4,111 $ 7,181 $ -- $ (5,548) $ 5,744
======== ======= ======= ======== =======
Year ended December 31, 1998............. $ 5,744 $ 8,545 $ -- $ (7,706) $ 6,583
======== ======= ======= ======== =======
<FN>
(1) Additions arising through acquisitions of paging companies
</FN>
</TABLE>
<TABLE>
<CAPTION>
Balance at Balance
Beginning Charged to Other at End of
Accrued Restructuring Charge of Period Expense Additions Deductions Period
---------------------------- --------- ------- --------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998............. $ -- $14,700 $ -- $ (2,791) $11,909
======= ======= ======= ======== =======
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Merger, dated as of August 18, 1998 by and among
Arch Communications Group, Inc., Farm Team Corp., MobileMedia
Corporation and MobileMedia Communications, Inc. (1)
2.2 First Amendment to Agreement and Plan of Merger, dated as of September
3, 1998, by and among Arch Communications Group, Inc., Farm Team Corp.
and MobileMedia Communications, Inc. (1)
2.3 Second Amendment to Agreement and Plan of Merger, dated as of December
1, 1998, by and among Arch Communications Group, Inc., Farm Team Corp.
and MobileMedia Communications, Inc. (1)
2.4 Third Amendment to Agreement and Plan of Merger, dated as of February
8, 1999 by and among Arch Communications Group, Inc., Farm Team Corp.,
MobileMedia Corporation and MobileMedia Communications, Inc. (14)
3.1 Restated Certificate of Incorporation. (2)
3.2 Certificate of Designations establishing the Series B Junior
Participating Preferred Stock. (3)
3.3 Certificate of Correction, filed with the Secretary of State of
Delaware on February 15, 1996. (2) 3.4 Certificate of Designations
establishing the Series C Convertible Preferred Stock. (4)
3.5 Form of Certificate of Amendment to the Restated Certificate of
Incorporation. (1)
3.6 Form of Certificate of Amendment to the Restated Certificate of
Incorporation. (1)
3.7 By-laws, as amended. (2)
4.1 Indenture, dated February 1, 1994, between Arch Communications, Inc.
(formerly known as USA Mobile Communications, Inc. II) and United
States Trust Company of New York, as Trustee, relating to the 9 1/2%
Senior Notes due 2004 of Arch Communications, Inc. (5)
4.2 Indenture, dated December 15, 1994, between Arch Communications, Inc.
and United States Trust Company of New York, as Trustee, relating to
the 14% Senior Notes due 2004 of Arch Communications, Inc. (6)
4.3 Indenture, dated June 29, 1998, between Arch Communications, Inc. and
U.S. Bank Trust National Association, as Trustee, relating to the 12
3/4% Senior Notes due 2007 of Arch Communications, Inc. (4)
10.1 Second Amended and Restated Credit Agreement (Tranche A and Tranche C
Facilities), dated June 29, 1998, among Arch Paging, Inc., the Lenders
party thereto, The Bank of New York, Royal Bank of Canada and Toronto
Dominion (Texas), Inc. (4)
10.2 Second Amended and Restated Credit Agreement (Tranche B Facility),
dated June 29, 1998, among Arch Paging, Inc., the Lenders party
thereto. The Bank of New York, Royal Bank of Canada and Toronto
Dominion (Texas), Inc. (4)
10.3* Amendment No. 1 and Amendment No. 2 to the Second Amended and
Restated Credit Agreement (Tranche A and Tranche C Facilities).
10.4* Amendment No. 1 and Amendment No. 2 to the Second Amended and
Restated Credit Agreement (Tranche B Facility).
10.5 Asset Purchase and Sale Agreement, dated April 10, 1998, among
OmniAmerica, Inc. and certain subsidiaries of Arch Communications
Group, Inc. (4)
10.6 Letter Agreement, dated June 10, 1998, between Arch Communications
Group, Inc. and Motorola, Inc. (4) (7)
10.7 Debtors' Third Amended Joint Plan of Reorganization, dated as of
December 1, 1998. (1)
10.8 Commitment Letters to Purchase Stock and Warrants, dated as of August
18, 1998, by and among Arch Communications Group, Inc., MobileMedia
Communications, Inc. and W.R. Huff Asset Management Co., L.L.C., The
Northwestern Mutual Life Insurance Company, Northwestern Mutual Series
Fund, Inc., Credit Suisse First Boston Corporation and Whippoorwill
Associates, Inc. (1)
10.9 Amendments to Commitment Letters to Purchase Stock and Warrants, dated
as of September 3, 1998, by and among Arch Communications Group, Inc.,
MobileMedia Communications, Inc. and W.R. Huff Asset Management Co.,
L.L.C., The Northwestern Mutual Life Insurance Company, Northwestern
Mutual Series Fund, Inc., Credit Suisse First Boston Corporation and
Whippoorwill Associates, Inc. (1)
<PAGE>
10.10 Amendments to Commitment Letters to Purchase Stock and Warrants,
dated as of December 1, 1998, by and among Arch Communications Group,
Inc., MobileMedia Communications, Inc. and W.R. Huff Asset Management
Co., L.L.C., The Northwestern Mutual Life Insurance Company,
Northwestern Mutual Series Fund, Inc., Credit Suisse First Boston
Corporation and Whippoorwill Associates, Inc. (1)
10.11 Amendments to Commitment Letters to Purchase Stock and Warrants,
dated as of February 8, 1999, by and among Arch Communications Group,
Inc., MobileMedia Communications, Inc. and W.R. Huff Asset Management
Co., L.L.C., The Northwestern Mutual Life Insurance Company,
Northwestern Mutual Series Fund, Inc., Credit Suisse First Boston
Corporation and Whippoorwill Associates, Inc. (14)
10.12 Form of Registration Rights Agreement, among Arch Communications
Group, Inc. and W.R. Huff Asset Management Co., L.L.C., The
Northwestern Mutual Life Insurance Company, Northwestern Mutual Series
Fund, Inc., Credit Suisse First Boston Corporation and Whippoorwill
Associates, Inc. (1)
10.13 Form of Registration Rights Agreement among Arch Communications
Group, Inc. and certain stockholders. (1)
10.14 Amendment No. 1 to Rights Agreement, dated June 29, 1998, between
Arch Communications Group, Inc. and the Bank of New York. (1)
10.15 Amendment No. 2 to Rights Agreement, dated as of August 18, 1998,
amending the Rights Agreement between Arch Communications Group, Inc.
and Bank of New York. (1)
10.16 Amendment No. 3 to Rights Agreement, dated as of September 3, 1998,
amending the Rights Agreement between Arch Communications Group, Inc.
and Bank of New York. (1)
10.17 Disclosure Statement of Debtors' Third Amended Joint Plan of
Reorganization, dated December 3, 1998. (1)
10.18 Form of Warrant Agreement, dated as of August 18, 1998, between Arch
Communications Group, Inc. and Bank of New York as provided for in the
First Amendment to Agreement and Plan of Merger Dated as of September
3, 1998 by and among Arch Communications Group, Inc., Farm Team Corp.
and MobileMedia Communications Inc. (1)
10.19 Bridge Commitment Letter, dated as of August 18, 1998, among Arch
Communications, Inc., Arch Communications Group, Inc. and The Bear
Stearns Companies, Inc., The Bank of New York, TD Securities (USA)
Inc. and the Royal Bank of Canada. (1)
10.20 Amendment No. 1 to Registration Rights Agreement, dated August 19,
1998, amending the Registration Rights Agreement dated as of June 29,
1998 by and among Arch Communications Group, Inc. and the Sandler
Capital Partners IV, LP, Sandler Capital Partners IV, FTE LP, South
Fork Partners, The Georgica International Fund Limited, Aspen Partners
and Consolidated Press International Limited. (1)
+10.21 Amended and Restated Stock Option Plan (8)
+10.22 Non-Employee Directors' Stock Option Plan (9)
+10.23 1989 Stock Option Plan, as amended (2)
+10.24 1995 Outside Directors' Stock Option Plan (10)
+10.25 1996 Employee Stock Purchase Plan (11)
+10.26 1997 Stop Option Plan (12)
+10.27 Deferred Compensation Plan for Nonemployee Directors (13)
+10.28 Form of Executive Retention Agreement by and between Messrs. Baker,
Daniels, Kuzia, Pottle and Saynor (13)
10.29 Stock Purchase Agreement, dated June 29, 1998, among Arch
Communications Group, Inc., Sandler Capital Partners IV, L.P., Sandler
Capital Partners IV FTE, L.P., Harvey Sandler, John Kornreich, Michael
J. Marocco, Andrew Sandler, South Fork Partners, the Georgica
International Fund Limited, Aspen Partners and Consolidated Press
International Limited. (3)
10.30 Registration Rights Agreement, dated June 29, 1998, among Arch
Communications Group, Inc., Sandler Capital Partners IV, L.P., Sandler
Capital Partners IV FTE, L.P., Harvey Sandler, John Kornreich, Michael
J. Marocco, Andrew Sandler, South Fork Partners, The Georgica
International Fund Limited, Aspen Partners and Consolidated Press
International Limited. (3)
10.31 Exchange Agreement, dated June 29, 1998, between Adelphia
Communications Corporation and Benbow PCS Ventures, Inc. (3)
10.32 Promissory Note, dated June 29, 1998, in the principal amount of
$285,015, issued by Benbow PCS Ventures, Inc. to Lisa-Gaye Shearing.
(3)
<PAGE>
10.33 Guaranty, dated June 29, 1998, given by Arch Communications Group,
Inc. to Adelphia Communications Corporation. (3)
10.34 Guaranty, dated June 29, 1998, given by Arch Communications Group,
Inc. to Lisa-Gaye Shearing. (3)
10.35 Registration Rights Agreement, dated June 29, 1998, among Arch
Communications Group, Inc., Adelphia Communications Corporation and
Lisa-Gaye Shearing. (3)
10.36* Preferred Distributor Agreement dated June 1, 1998 by and between
Arch Communications Group, Inc. and NEC America, Inc. (7)
21.1* Subsidiaries of the Registrant.
23.1* Consent of Arthur Andersen LLP.
27.1* Financial Data Schedule.
- ----------------
* Filed herewith.
+ Identifies exhibits constituting a management contract or compensation
plan.
(1) Incorporated by reference from the Registration Statement on Form S-4
(file No. 333-63519) of Arch Communications Group, Inc.
(2) Incorporated by reference from the Registration Statement on Form S-3
(file No 333-542) of Arch Communications Group, Inc.
(3) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated October 13, 1995 and filed on October
24, 1995.
(4) Incorporated by referenced from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated June 26, 1998.
(5) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-72646) of Arch Communications, Inc.
(6) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-85580) of Arch Communications, Inc.
(7) A Confidential Treatment Request has been filed with respect to
portions of this exhibit so incorporated by reference.
(8) Incorporated by reference from the Annual Report on Form 10-K of Arch
Communications Group, Inc. (then known as USA Mobile Communications
Holdings, Inc.) for the fiscal year ended December 31, 1994.
(9) Incorporated by reference from the Registration Statement on Form S-4
( File No. 33-83648) of Arch Communications Group, Inc. (then known as
USA Mobile Communications Holdings, Inc.)
(10) Incorporated by reference from the Registration Statement on Form S-3
( File No. 33-87474) of Arch Communications Group, Inc.
(11) Incorporated by reference from the Annual Report on Form 10-K of Arch
Communications Group, Inc. for the fiscal year ended December 31,
1995.
(12) Incorporated by reference from the Annual Report on Form 10-K of Arch
Communications Group, Inc. for the fiscal year ended December 31,
1996.
(13) Incorporated by reference from the Annual Report on Form 10-K of Arch
Communications Group, Inc. for the fiscal year ended December 31,
1997.
(14) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications Group, Inc., dated March 2, 1999.
EXHIBIT 10.3
AMENDMENT NO. 1
TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
AMENDMENT NO. 1 (this "Amendment"), dated as of September 14, 1998, to and
under the Second Amended and Restated Credit Agreement (Tranche A and Tranche C
Facilities) (the "Credit Agreement"), dated as of June 29, 1998, by and among
Arch Paging, Inc. (the "Borrower"), the Lenders party thereto, The Bank of New
York, Royal Bank of Canada and Toronto Dominion (Texas), Inc., as Managing
Agents, Royal Bank of Canada, as Documentation Agent, Toronto Dominion (Texas),
Inc., as Syndication Agent, and The Bank of New York, as Administrative Agent.
RECITALS
A. Capitalized terms used herein which are not defined herein shall have
the respective meanings ascribed thereto in the Credit Agreement as amended
hereby.
B. MobileMedia Corp. and certain of its Subsidiaries are debtors in
possession in the Bankruptcy Proceeding.
C. Pursuant to the Amended Plan, on the Merger Effective Date, immediately
after the discharge of all claims against, and the termination of all interests
in, MobileMedia Corp. and its Subsidiaries to the extent and in the manner set
forth in the Confirmation Order, and immediately prior to the Merger Effective
Time: (i) MobileMedia Corp. shall make the MobileMedia Corp. Contribution and
shall thereafter immediately dissolve, (ii) Pre-Merger MobileMedia shall merge
with and into Farm Team, with Farm Team as the survivor and the MobileMedia Name
Change shall occur, (iii) Pre-Merger MMCA shall merge with and into Delaware
Subsidiary with Delaware Subsidiary as the survivor and the MMCA Name Change
shall occur, (iv) all Pre-Merger MMCA Wholly-Owned Subsidiaries shall merge with
and into MMCA (formerly, Delaware Subsidiary) with MMCA as the survivor, (v) all
Pre-Merger MobileMedia Wholly-Owned Subsidiaries shall be merged with and into
MMCA with MMCA as the survivor, (vi) the merger of FWS Radio and MobileComm West
with and into MMCA with MMCA as the survivor, (vii) MobileMedia shall make the
MobileMedia Contribution, and (viii) MMCA shall organize MobileMedia License
Subsidiary and shall make the MMCA Contribution.
D. In order to finance a portion of the purchase price of the MobileMedia
Merger, (i) the net proceeds of the MobileMedia Tower Sale will be applied to
the repayment of indebtedness of MobileMedia Corp. and its Subsidiaries under
the MobileMedia 1995 Loan Documents, (ii) Arch will issue the New Arch Notes in
an aggregate principal amount not less than $120,000,000 and will contribute the
net proceeds thereof to the Borrower as additional equity, (iii) the Borrower
will lend such net proceeds to Farm Team to be used by Farm Team to repay a
<PAGE>
portion of the Existing MobileMedia Debt and (iv) the Parent will conduct the
Rights Offering and shall use the net proceeds thereof to repay a portion of the
Existing MobileMedia Debt and other claims as provided in the Amended Plan and
the Confirmation Order.
E. In order to permit and facilitate the foregoing transactions, the Parent
and the Borrower have requested that the Lenders agree to certain amendments to
the Credit Agreement as set forth below, and the Lenders are willing to do so
subject to the terms and conditions set forth below.
Accordingly, in consideration of the Recitals and the covenants, conditions
and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. The Lenders hereby agree that the Aggregate Tranche A Commitments may be
increased (the "Proposed Aggregate Tranche A Commitment Increase") on the Merger
Effective Date substantially contemporaneously with the consummation of the
MobileMedia Merger by an amount not in excess of $25,000,000, provided that (i)
the Borrower has obtained commitments for such increase from one or more
Eligible Institutions acceptable to the Administrative Agent and the Letter of
Credit Issuer or from one or more Lenders, (ii) each such Lender or Eligible
Institution shall have notified the Borrower and the Administrative Agent in
writing of its assumption of such commitment and the amount thereof, (iii) in
the case of an Eligible Institution, (A) such Eligible Institution shall have
agreed in a writing satisfactory to the Borrower and the Administrative Agent to
assume all the rights and obligations of a "Lender" under the Agreement and the
other Loan Documents, and (B) the Borrower shall have executed and delivered a
Note to such Eligible Institution, and (iv) the sum of the Proposed Aggregate
Tranche A Commitment Increase plus the Proposed Aggregate Tranche B Commitment
Increase (as defined in the Tranche B Credit Agreement Amendment) plus the
Proposed Additional Tranche C Loans shall not exceed $200,000,000 (the "Proposed
Facility Increase Maximum Amount"). If the MobileMedia Merger has not been
consummated prior to the time required by Section 8.3 of the Credit Agreement,
the Aggregate Tranche A Commitments shall not be increased.
2. The Lenders hereby agree that the Borrower may borrow Additional Tranche
C Loans (as hereinafter defined) on the Merger Effective Date substantially
contemporaneously with the consummation of the MobileMedia Merger in an
aggregate amount not in excess of $200,000,000 (the "Proposed Additional Tranche
C Loans"), provided that (i) the Borrower has obtained the commitments for such
Additional Tranche C Loans from one or more Eligible Institutions acceptable to
the Administrative Agent and the Letter of Credit Issuer or from one or more
Lenders, (ii) each such Lender or Eligible Institution shall have notified the
Borrower and the Administrative Agent in writing of its assumption of such
commitment and the amount thereof, (iii) in the case of an Eligible Institution,
- 2 -
<PAGE>
(A) such Eligible Institution shall have agreed in a writing satisfactory to the
Borrower and the Administrative Agent to assume all the rights and obligations
of a "Lender" under the Agreement and the other Loan Documents, and (B) the
Borrower shall have executed and delivered a Note to such Eligible Institution,
and (iv) the sum of the Proposed Aggregate Tranche A Commitment Increase plus
the Proposed Aggregate Tranche B Commitment Increase (as defined in the Tranche
B Credit Agreement Amendment) plus the Proposed Additional Tranche C Loans shall
not exceed $200,000,000. If the MobileMedia Merger has not been consummated
prior to the time required by Section 8.3 of the Credit Agreement, no Additional
Tranche C Loans shall be made.
3. The following definitions contained in Section 1.1 of Credit Agreement
are amended in their entirety to read as follows:
"Applicable Margin":
(a) For the period from the Second Restatement Date until
the Merger Effective Date or, if the Merger Effective Date does not
occur, for the period on and after the Second Restatement Date:
(i) As to the Tranche A Loans and Letters of Credit, at
all times during the applicable periods set forth below: (1) with
respect to the unpaid principal amount thereof consisting of ABR
Advances, the applicable percentage set forth in the following table
under the heading "ABR" and (2) with respect to (x) the unpaid
principal amount thereof consisting of Eurodollar Advances, and (y)
Letter of Credit Fees, the applicable percentage set forth in the
following table under the heading "Eurodollar and LC Rate":
---------------------------------------------------------------
PRICING LEVERAGE RATIO
---------------------------------------------------------------
Greater Than Eurodollar and
or Equal To Less Than ABR LC Rate
--------------- ------------ ---------- -----------------
5.00:1.00 1.750% 3.000%
--------------- ------------ ---------- -----------------
4.50:1.00 5.00:1.00 1.500% 2.750%
--------------- ------------ ---------- -----------------
4.00:1.00 4.50:1.00 1.125% 2.375%
--------------- ------------ ---------- -----------------
3.00:1.00 4.00:1.00 0.750% 2.000%
--------------- ------------ ---------- -----------------
3.00:1.00 0.375% 1.625%
--------------- ------------ ---------- -----------------
(ii) As to the Tranche C Loans:
(A) for the period from the Second Restatement
Date until December 26, 1998, (1) with respect to the unpaid principal
amount thereof consisting of ABR Advances, 2.00%, and (2) with respect
to the unpaid principal amount thereof consisting of Eurodollar
Advances, 3.25%, and
- 3 -
<PAGE>
(B) thereafter, at all times during the applicable
periods set forth below: (1) with respect to the unpaid principal
amount thereof consisting of ABR Advances, the applicable percentage
set forth in the following table under the heading "ABR" and (2) with
respect to the unpaid principal amount thereof consisting of
Eurodollar Advances, the applicable percentage set forth in the
following table under the heading "Eurodollar Rate":
---------------------------------------------------------------
PRICING LEVERAGE RATIO
---------------------------------------------------------------
Greater Than
or Equal To Less Than ABR Eurodollar Rate
--------------- ------------ ---------- -----------------
5.00:1.00 2.000% 3.250%
--------------- ------------ ---------- -----------------
4.50:1.00 5.00:1.00 1.750% 3.000%
--------------- ------------ ---------- -----------------
4.50:1.00 1.500% 2.750%
--------------- ------------ ---------- -----------------
(iii) Changes in the Applicable Margin resulting from a
change in the Pricing Leverage Ratio, as set forth in a Compliance
Certificate delivered pursuant to Section 7.1(c) evidencing such a
change, shall become effective upon the second Business Day following
the delivery by the Borrower to the Administrative Agent of a new
Compliance Certificate pursuant to Section 7.1(c) evidencing a change
in the Pricing Leverage Ratio. If the Borrower shall fail to deliver a
Compliance Certificate within 60 days after the end of each of the
first three fiscal quarters (or 90 days after the end of the last
fiscal quarter) as required by Section 7.1(c), the Pricing Leverage
Ratio, solely for purposes of calculating the Applicable Margin, shall
be deemed to be greater than 5.00:1.00 from and including the date on
which such Compliance Certificate was required to be delivered to the
date of delivery to the Administrative Agent of such Compliance
Certificate.
(b) On and after the Merger Effective Date:
(i) As to the Tranche A Loans and Letters of Credit:
(A) For the period from the Merger Effective Date
through and including the first anniversary thereof, at all times
during the applicable periods set forth below: (1) with respect to the
unpaid principal amount thereof consisting of ABR Advances, the
applicable percentage set forth in the following table under the
heading "ABR" and (2) with respect to (x) the unpaid principal amount
thereof consisting of Eurodollar Advances, and (y) Letter of Credit
Fees, the applicable percentage set forth in the following table under
the heading "Eurodollar and LC Rate":
- 4 -
<PAGE>
---------------------------------------------------------------
PRICING LEVERAGE RATIO
---------------------------------------------------------------
Greater Than Eurodollar and
or Equal To Less Than ABR LC Rate
--------------- ------------ ---------- -----------------
4.50:1.00 1.875% 3.125%
--------------- ------------ ---------- -----------------
4.00:1.00 4.50:1.00 1.500% 2.750%
--------------- ------------ ---------- -----------------
3.00:1.00 4.00:1.00 1.125% 2.375%
--------------- ------------ ---------- -----------------
3.00:1.00 0.750% 2.000%
--------------- ------------ ---------- -----------------
(B) After the first anniversary of the Merger
Effective Date, at all times during the applicable periods set forth
below: (1) with respect to the unpaid principal amount thereof
consisting of ABR Advances, the applicable percentage set forth in the
following table under the heading "ABR" and (2) with respect to (x)
the unpaid principal amount thereof consisting of Eurodollar Advances,
and (y) Letter of Credit Fees, the applicable percentage set forth in
the following table under the heading "Eurodollar and LC Rate":
---------------------------------------------------------------
PRICING LEVERAGE RATIO
---------------------------------------------------------------
Greater Than Eurodollar and
or Equal To Less Than ABR LC Rate
--------------- ------------ ---------- -----------------
4.50:1.00 1.500% 2.750%
--------------- ------------ ---------- -----------------
4.00:1.00 4.50:1.00 1.125% 2.375%
--------------- ------------ ---------- -----------------
3.00:1.00 4.00:1.00 0.750% 2.000%
--------------- ------------ ---------- -----------------
3.00:1.00 0.375% 1.625%
--------------- ------------ ---------- -----------------
(ii) As to the Tranche C Loans:
(A) for the six month period commencing on the
Merger Effective Date, (1) with respect to the unpaid principal amount
thereof consisting of ABR Advances, 3.000%, and (2) with respect to
the unpaid principal amount thereof consisting of Eurodollar Advances,
4.250%
(B) for the next six month period, (1) with
respect to the unpaid principal amount thereof consisting of ABR
Advances, 2.750%, and (2) with respect to the unpaid principal amount
thereof consisting of Eurodollar Advances, 4.000%
(C) for the period beginning on the day following
the first anniversary of the Merger Effective Date and thereafter, at
all times during the applicable periods set forth below: (1) with
respect to the unpaid principal amount thereof consisting of ABR
Advances, the applicable percentage set forth in the following table
under the heading "ABR" and (2) with respect to the unpaid principal
amount thereof consisting of Eurodollar Advances, the applicable
- 5 -
<PAGE>
percentage set forth in the following table under the heading
"Eurodollar Rate":
---------------------------------------------------------------
PRICING LEVERAGE RATIO
---------------------------------------------------------------
Greater Than
or Equal To Less Than ABR Eurodollar Rate
--------------- ------------ ---------- -----------------
4.50:1.00 2.000% 3.250%
--------------- ------------ ---------- -----------------
3.50:1.00 4.50:1.00 1.750% 3.000%
--------------- ------------ ---------- -----------------
3.50:1.00 1.500% 2.750%
--------------- ------------ ---------- -----------------
(iii) Changes in the Applicable Margin resulting from a
change in the Pricing Leverage Ratio, as set forth in a Compliance
Certificate delivered pursuant to Section 7.1(c) evidencing such a
change, shall become effective upon the second Business Day following
the delivery by the Borrower to the Administrative Agent of a new
Compliance Certificate pursuant to Section 7.1(c) evidencing a change
in the Pricing Leverage Ratio. If the Borrower shall fail to deliver a
Compliance Certificate within 60 days after the end of each of the
first three fiscal quarters (or 90 days after the end of the last
fiscal quarter) as required by Section 7.1(c), the Pricing Leverage
Ratio, solely for purposes of calculating the Applicable Margin, shall
be deemed to be greater than 4.50:1.00 from and including the date on
which such Compliance Certificate was required to be delivered to the
date of delivery to the Administrative Agent of such Compliance
Certificate.
"Change of Control": any change of control, fundamental
change or any similar circumstance which, under any of the Existing
Arch Indentures, the Arch 12 3/4% Indenture, the Parent Discount Notes
Indenture, the Subordinated Indenture, the New Arch Indenture (if
existing), the Replacement Indenture (if existing) or the
documentation evidencing or governing any other Indebtedness of the
Parent, Arch or the Borrower of $15,000,000 or more, results in an
obligation of the Parent, Arch or the Borrower to prepay, purchase,
offer to purchase, redeem or defease such Indebtedness.
"Net Sales Proceeds": an amount equal to the greater of (i)
the aggregate gross sales proceeds received from each sale or other
disposition, direct or indirect, of Property (other than inventory or
Property sold or otherwise disposed of in the ordinary course of
business) less (x) sales and other commissions and legal and other
expenses incurred in connection with such sale, including reasonable
expenses incurred in connection with the preparation of such Property
for sale, (y) taxes reasonably estimated to be payable with respect to
such sale by the Parent and its Subsidiaries for the taxable year in
which such sale occurred (taking into consideration the Parent's
overall Consolidated tax position for such year) and (z) the amount of
Indebtedness secured by such Property which is required to be repaid
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upon such sale or (ii) 100% of the Net Cash Proceeds (or similar
amount) as defined in any of the Parent Discount Notes Indenture, the
Existing Arch Indentures, the Arch 12 3/4% Indenture, the New Arch
Indenture (if existing) or the Replacement Indenture (if existing), in
each case in effect on the date of determination of Net Sales
Proceeds.
"Required Obligations": on any date, interest due and
payable on such date on the Existing Arch Senior Notes, the Arch 12
3/4% Senior Notes, the New Arch Notes (if existing) and any
Replacement Notes (if existing).
"Tranche C Lenders": each Lender having a Tranche C Loan
outstanding, including the Initial Tranche C Lenders, the Additional
Tranche C Lenders and their respective successors and assigns.
"Tranche C Loans": collectively, the Initial Tranche C Loans
and the Additional Tranche C Loans.
"Transaction Documents": (i) prior to the Amendment
Effective Date, collectively the Loan Documents, the Arch 12 3/4%
Indenture, the Equity Investment Documents and all documents executed
and delivered in connection with the Arch Transactions, the ACE
Transactions and the Equity Investment, and (ii) on and after the
Amendment Effective Date, collectively the Loan Documents, the New
Arch Indenture (if existing) and the MobileMedia Transaction
Documents.
4. Section 1.1 of the Credit Agreement is amended by adding the following
definitions in their appropriate alphabetical order:
"Additional Tranche C Lender": a Lender which makes an
Additional Tranche C Loan.
"Additional Tranche C Loan": as defined in Section 2.1(b).
"Amended Plan": the Debtors' Second Amended Joint Plan of
Reorganization, dated September 3, 1998, filed by MobileMedia Corp.
and its Subsidiaries in the Bankruptcy Proceeding.
"Amendment Effective Date": as defined in Amendment No. 1.
"Amendment No. 1": Amendment No. 1, dated as of September
14, 1998, to this Agreement.
"Bankruptcy Court": the United States Bankruptcy Court for
the District of Delaware.
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"Bankruptcy Proceeding": the proceeding entitled In re:
MobileMedia Communications, Inc. et al. pending in the Bankruptcy
Court.
"Confirmation Order": the order of the Bankruptcy Court
confirming the Amended Plan.
"Delaware Subsidiary": Delaware Subsidiary Co., a Delaware
corporation and a wholly-owned Subsidiary of Pre-Merger MobileMedia,
to be renamed MobileMedia Corporation of America in the MMCA Name
Change.
"Dial Page Indenture": the Indenture, dated as of February
1, 1993, between Dial Page, Inc., as Issuer, and Norwest Bank
Minnesota, N.A. (as successor to First Union Bank of South Carolina),
as Trustee, as amended.
"Dial Page Notes": the 12 1/4% Senior Notes due 2000, issued
by Dial Page, Inc. pursuant to the Dial Page Indenture.
"Existing MobileMedia Debt": collectively, the indebtedness
of MobileMedia Corp. and its Subsidiaries under and in respect of the
Dial Page Indenture, the Dial Page Notes, the MobileMedia 1995 Loan
Documents, the MobileMedia DIP Loan Documents, the MobileMedia 9 3/8%
Note Indenture, the MobileMedia 9 3/8% Notes, the MobileMedia 10 1/2%
Note Indenture and the MobileMedia 10 1/2% Notes, including all
outstanding principal, unpaid and accrued interest, unpaid and accrued
fees and other unpaid sums under each thereof, in each case to the
extent allowed in the Bankruptcy Proceeding.
"Farm Team": Farm Team Corp., a Delaware corporation and a
direct wholly-owned Subsidiary of the Parent, to be renamed
MobileMedia Communications, Inc. in the MobileMedia Name Change and to
be contributed to the Borrower in the MobileMedia Dropdown.
"FCC Proceeding": the hearing in WT Docket No. 97-115,
entitled In the Matter of MobileMedia Corporation, et al. relating to
Pre-Merger MobileMedia's and its Subsidiaries' qualifications to
remain FCC licensees.
"Final Order": as to any court, administrative agency or
other tribunal, an order or judgment of such tribunal as entered on
its docket, which order or judgment shall not have been reversed,
stayed, enjoined, annulled or suspended and the time for filing an
appeal, petition for certiorari or other request for administrative or
judicial relief or, in the case of an order of the FCC, for
instituting administrative review of such order sua sponte, has
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expired and as to which no appeal, petition for certiorari or other
request for administrative or judicial relief or, in the case of an
order of the FCC, for instituting administrative review of such order
sua sponte, is pending or, if an appeal, petition for certiorari or
other request for administrative or judicial relief or, in the case of
an order of the FCC, for instituting administrative review of such
order sua sponte, has been timely filed or taken, the order or
judgment of such court, administrative agency or other tribunal has
been affirmed (or such appeal, petition or other request for
administrative or judicial relief has been dismissed as moot) by the
highest court (or other tribunal having appellate jurisdiction over
the order or judgment) to which the order was appealed or the petition
for certiorari has been denied or, in the case of an order of the FCC
which the FCC decided to review sua sponte, the FCC has either
withdrawn or dismissed such review, and the time to take any further
appeal or to seek further certiorari or judicial or administrative
review has expired.
"FWS Radio": FWS Radio, Inc., a Texas corporation, and prior
to the consummation of the MobileMedia Subsidiary Transactions, an
indirect Subsidiary of Pre-Merger MobileMedia.
"HSR Act": the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Initial Tranche C Lender": each Lender which made an
Initial Tranche C Loan and its successors and assigns.
"Initial Tranche C Loans": the Tranche C Loans made to the
Borrower on the Second Restatement Date in the aggregate principal
amount of $125,000,000.
"Locate Entities": Proximity Communications Manager, Inc.,
Proximity Communications, Inc., Locate-1, Inc., Proximity
Communications, L.L.C. and Personal Communication Network Services of
New York, Inc.
"Merger Agreement": the Agreement and Plan of Merger, dated
as of August 18, 1998, by and among the Parent, Farm Team, MobileMedia
Corp. and Pre-Merger MobileMedia, as amended by the First Amendment,
dated as of September 3, 1998.
"Merger Effective Date": provided that the conditions
precedent to the consummation of the MobileMedia Merger as set forth
in Section 8.3(iv) shall have been satisfied (prior to or
simultaneously) or waived in accordance with the provisions of Section
11.1, the date upon which the MobileMedia Merger becomes effective.
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"Merger Effective Time": the time on the Merger Effective
Date at which the MobileMedia Merger becomes effective.
"MMCA": prior to the MMCA Name Change, Delaware Subsidiary
Co., and after the MMCA Name Change, MobileMedia Corporation of
America.
"MMCA Contribution": the transfer by MMCA of all licenses
and other authorizations previously issued to Pre- Merger MobileMedia
or any of its Subsidiaries to operate their paging networks to
MobileMedia License Subsidiary.
"MMCA Name Change": the change of the name of Delaware
Subsidiary to "MobileMedia Corporation of America" after the merger of
Pre-Merger MMCA with and into Delaware Subsidiary.
"MobileComm West": MobileComm of the West, Inc., a
California corporation, and prior to the consummation of the
MobileMedia Transactions, an indirect Subsidiary of Pre-Merger
MobileMedia.
"MobileMedia": prior to the MobileMedia Name Change, Farm
Team Corp. and on and after the MobileMedia Name Change, MobileMedia
Communications, Inc.
"MobileMedia Contribution": the transfer by MobileMedia of
all of its assets (other than its Stock in MMCA and the Locate
Entities) to MMCA.
"MobileMedia Corp.": MobileMedia Corporation, a Delaware
corporation, which will be dissolved immediately after the MobileMedia
Corp. Contribution.
"MobileMedia Corp. Contribution": the transfer by
MobileMedia Corp. of all of its assets to Pre-Merger MobileMedia.
"MobileMedia DIP Loan Documents": collectively, (i) the
Credit Agreement, dated as of January 30, 1997, among Pre-Merger
MobileMedia, the lenders party thereto and The Chase Manhattan Bank,
as agent, and (ii) the guaranties, security documents and other loan
documents executed and delivered in connection therewith.
"MobileMedia Dropdown": collectively, the contribution of
all of the issued and outstanding capital Stock of MobileMedia (i) by
the Parent to Arch and (ii) thereafter by Arch to the Borrower.
"MobileMedia Intercompany Note": the promissory note, to be
made by Farm Team to the Borrower.
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"MobileMedia License Subsidiary": a wholly-owned Subsidiary
of MMCA to be created prior to the Merger Effective Date.
"MobileMedia Merger": the merger of Pre-Merger MobileMedia
with and into Farm Team.
"MobileMedia 1995 Loan Documents": collectively, (i) the
Credit Agreement, dated as of December 4, 1995, among Pre-Merger
MobileMedia, the lenders party thereto and The Chase Manhattan Bank,
as agent, and (ii) the guaranties, security documents and other loan
documents executed and delivered in connection therewith.
"MobileMedia Merger Certificate": the Certificate of
Ownership and Merger, filed with the Secretary of State of the State
of Delaware to effect the MobileMedia Merger.
"MobileMedia Merger Documents": collectively, (i) the Merger
Agreement, (ii) Warrant Agreements, (iii) the Registration Rights
Agreements, (iv) the MobileMedia Subsidiary Transaction Documents, (v)
the Standby Purchase Commitment Letters, and (vi) all other documents
executed and delivered in connection with the MobileMedia Merger, the
MobileMedia Subsidiary Transactions and the Rights Offering.
"MobileMedia Name Change": the change of the name of Farm
Team to "MobileMedia Communications, Inc." after the MobileMedia
Merger.
"MobileMedia Subsidiary Merger Certificates": collectively,
the Certificates of Ownership and Merger (or analogous documents)
filed with the Secretary of State of the applicable jurisdictions to
effect (i) the merger of Pre- Merger MMCA with and into MMCA with MMCA
as the survivor, (ii) the merger of each of the Pre-Merger MobileMedia
Wholly-Owned Subsidiaries, Pre-Merger MMCA Wholly-Owned Subsidiaries,
FWS Radio and MobileComm West, with and into MMCA with MMCA as the
survivor.
"MobileMedia Subsidiary Transactions": collectively, the
following transactions which are to take place after the MobileMedia
Merger and in the following order: (i) the merger of Pre-Merger MMCA
with and into MMCA with MMCA as the survivor, (ii) the MMCA Name
Change, (iii) the merger of all Pre-Merger MobileMedia Wholly-Owned
Subsidiaries with and into MMCA with MMCA as the survivor, (iv) the
MobileMedia Contribution, (v) the merger of FWS Radio and MobileComm
West with and into MMCA with MMCA as the survivor, (vi) the merger of
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each of the Pre-Merger MobileMedia Wholly-Owned Subsidiaries with and
into MMCA with MCCA as the survivor, and (vii) the MMCA Contribution.
"MobileMedia Subsidiary Transaction Documents":
collectively, all documents executed in connection with the
MobileMedia Subsidiary Transactions.
"MobileMedia Tower Sale": the sale by MobileMedia and its
Subsidiaries of certain transmission towers and related assets
pursuant to the Purchase Agreement, dated as of July 7, 1998, among
MobileMedia, its Subsidiaries party thereto and Pinnacle Towers, Inc.,
or such other agreement to sell such towers and related assets as may
be approved by the Bankruptcy Court.
"MobileMedia Transactions": collectively, the following
transactions which are to take place in the following order: (i) the
MobileMedia Corp. Contribution, (ii) the dissolution of MobileMedia
Corp., (iii) the MobileMedia Merger, (iv) the MobileMedia Name Change,
(v) the MobileMedia Subsidiary Transactions, and (vi) the MobileMedia
Dropdown.
"MobileMedia Transaction Documents": collectively, the
MobileMedia Merger Documents, the MobileMedia Subsidiary Transaction
Documents, and all other documents executed and delivered in
connection with the MobileMedia Transactions.
"MobileMedia 9 3/8% Note Indenture": the Indenture dated as
of November 13, 1995, between Pre-Merger MobileMedia, as Issuer, and
State Street Bank and Trust Company, as Trustee.
"MobileMedia 9 3/8% Notes": the Senior Subordinated Notes
due November 1, 2007, issued by Pre-Merger MobileMedia pursuant to the
9 3/8% Note Indenture.
"MobileMedia 10 1/2% Note Indenture": the Indenture dated as
of December 1, 1993, between Pre-Merger MobileMedia, as Issuer, and
First Trust USA (as successor to BankAmerica National Trust Company),
as Trustee, as amended.
"MobileMedia 10 1/2% Notes": the Senior Subordinated
Deferred Coupon Notes due December 1, 2003, issued by Pre-Merger
MobileMedia pursuant to the 10 1/2% Note Indenture.
"New Arch Notes": as defined in Section 8.3(iv)(C).
"New Arch Indenture": as defined in Section 8.3(iv)(C).
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"Parent Warrants": warrants for the purchase of common Stock
of the Parent, certain of which such warrants will be subscribed for
in the Rights Offering.
"Pre-Merger MMCA": MobileMedia Corporation of America, a
Mississippi corporation, as in existence prior to its merger with and
into Delaware Subsidiary.
"Pre-Merger MMCA Wholly-Owned Subsidiaries": collectively,
each of the following which, prior to the MobileMedia Transactions was
a direct wholly-owned Subsidiary of Pre-Merger MMCA: (i) MobileComm of
Florida, Inc., a Florida corporation, (ii) MobileComm of Tennessee,
Inc., a Tennessee corporation, (ii) MobileComm of Tennessee, Inc., a
Tennessee corporation, (iii) MobileComm of the Midsouth, Inc., a
Missouri corporation, (iv) MobileComm Nationwide Operations, Inc., a
Delaware corporation, (v) MobileComm of the Northeast, Inc., a
Delaware corporation, (vi) MobileComm of the Southeast, Inc., a
Delaware and Virginia corporation, (vii) MobileComm of the Southeast
Private Carrier Operations, Inc., a Georgia corporation, and (viii)
MobileComm of the Southwest, Inc., a Texas corporation.
"Pre-Merger MobileMedia": MobileMedia Communications, Inc.,
a Delaware corporation, as in existence prior to the MobileMedia
Merger.
"Pre-Merger MobileMedia Wholly-Owned Subsidiaries":
collectively, each of the following which, prior to the MobileMedia
Transactions was a direct wholly-owned Subsidiary of Pre-Merger
MobileMedia: (i) Dial Page Southeast, a Delaware corporation, (ii)
MobileMedia Communications, Inc. (CA), a California corporation, (iii)
MobileMedia DP Properties, Inc., a Delaware corporation, (iv)
MobileMedia Paging, Inc., a Delaware corporation, (v) MobileMedia PCS,
Inc., a Delaware corporation, and (vi) Radio Call Co. of Va., Inc., a
Virginia corporation.
"Prepayment Fee": as defined in Section 2.5(b).
"Registration Rights Agreements": collectively, the
registration rights agreements entered into between the Parent and any
other Person in accordance with the Amended Plan.
"Rights": certificated, transferable rights issued by the
Parent for the purchase of (i) shares of common Stock of the Parent
and (ii) the Parent Warrants, which Rights shall be issued to certain
holders of unsecured claims of MobileMedia Corp. and its Subsidiaries
in accordance with the Amended Plan and Merger Agreement.
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"Rights Offering": the issuance of the Rights by the Parent
pursuant to the Amended Plan and the Merger Agreement.
"Standby Purchase Commitment Letters": collectively, the
commitment letters, each dated August 18, 1998, made by the Standby
Purchasers evidencing their commitments to purchase common Stock of
the Parent and Parent Warrants in the event any Rights are not
exercised in the Rights Offering.
"Standby Purchasers": collectively, those unsecured
creditors of MobileMedia Corp. and its subsidiaries that have executed
a Standby Purchase Commitment Letter.
"Warrant Agreements": collectively, the warrant agreements
entered into between the Parent and any other Person in accordance
with the Amended Plan.
5. Section 2.1(b) of the Credit Agreement is amended in its entirety to
read as follows:
(b) Tranche C Loans. On the Second Restatement Date, the Initial
Tranche C Lenders made the Initial Tranche C Loans to the Borrower.
Subject to the terms and conditions hereof, each Lender which has
agreed to make an Additional Tranche C Loan severally agrees to make
such Additional Tranche C Loan to the Borrower in a single draw on the
Merger Effective Date in the amount theretofor agreed with the
Borrower (each, an "Additional Tranche C Loan", collectively with the
Additional Tranche C Loan of each other Additional Tranche C Lender,
the "Additional Tranche C Loans"), provided that the aggregate amount
of all of the Additional Tranche C Loans shall not exceed
$200,000,000. No amounts paid or prepaid with respect to Tranche C
Loans may be reborrowed.
6. Subsections (a) and (b) of Section 2.2 of the Credit Agreement are
amended in their entirety to read as follows:
(a) The Borrower may borrow (i) under the Aggregate Tranche A
Commitments on any Business Day during the Tranche A Commitment
Period, or (ii) the Additional Tranche C Loans on the Merger Effective
Date, provided that the Borrower shall notify the Administrative Agent
(by telephone or fax) no later than 1:00 p.m. (A) three Business Days
prior to the requested Credit Extension Date in the case of Eurodollar
Advances and (B) one Business Day prior to the requested Credit
Extension Date in the case of ABR Advances, in each case specifying
(1) if requesting Tranche A Loans, the aggregate principle amount to
be borrowed under the Aggregate Tranche A Commitments, (2) the
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requested Credit Extension Date, (3) whether such borrowing is to
consist of one or more Eurodollar Advances, ABR Advances, or a
combination thereof and (4) if the borrowing is to consist of one or
more Eurodollar Advances, the length of the Interest Period or Periods
for each such Eurodollar Advance (subject to the provisions of the
definition of Interest Period). Each such notice shall be irrevocable
and confirmed immediately by delivery to the Administrative Agent of a
Credit Request. Each ABR Advance shall be in an aggregate principal
amount equal to $100,000 or such amount plus a whole multiple of
$100,000 in excess thereof, or, if less, the unused amount of the
Aggregate Tranche A Commitments, and each Eurodollar Advance shall be
in an aggregate principal amount equal to $500,000 or such amount plus
a whole multiple of $100,000 in excess thereof. If, with respect to
any borrowing, the Borrower shall fail to give due notice as provided
in this Section, the Borrower shall be deemed to have selected an ABR
Advance for such borrowing.
(b) Upon receipt of such notice of borrowing from the Borrower,
the Administrative Agent shall promptly notify each Lender which is a
member of the Class from which a Loan has been requested of such
notice of borrowing. Subject to its receipt of the notice referred to
in the preceding sentence, each such Lender will make the amount of
its (i) Tranche A Percentage of each such borrowing of Tranche A
Loans, or (ii) its Additional Tranche C Loan, as the case may be,
available to the Administrative Agent for the account of the Borrower
at the Payment Office not later than 2:30 p.m., on the relevant Credit
Extension Date requested by the Borrower, in funds immediately
available to the Administrative Agent at such office. The amounts so
made available to the Administrative Agent on such Credit Extension
Date will then, subject to the satisfaction of the terms and
conditions of this Agreement as determined by the Administrative
Agent, be made available on such date to the Borrower by the
Administrative agent at the Payment Office by crediting the account of
the Borrower on the books of such office with the aggregate of said
amounts received by the Administrative Agent. Unless the
Administrative Agent shall have received prior notice from a Lender
(by telephone or otherwise, such notice to be confirmed by telecopy or
other writing) that it will not make available to the Administrative
Agent its Tranche A Percentage of any Loans requested by the Borrower
or its Additional Tranche C Loan, as the case may be, the
Administrative Agent may assume that such Lender has made such share
available to the Administrative Agent on the requested Credit
Extension Date in accordance with this Section, provided that such
Lender received notice of the proposed borrowing from the
Administrative Agent, and the Administrative Agent may, in reliance
upon such assumption, make available to the Borrower on such Credit
Extension Date a corresponding amount. If and to the extent such
Lender shall not have so made such share available to the
Administrative Agent, such Lender and the Borrower severally agree to
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pay to the Administrative Agent forthwith on demand such corresponding
amount (to the extent not previously paid by the other), together with
interest thereon for each day from the date such amount is made
available to the Borrower until the date such amount is paid to the
Administrative Agent, at a rate per annum equal to, in the case of the
Borrower the applicable interest rate set forth in Section 3.1, and,
in the case of such Lender, the Federal Funds Rate in effect on such
date (as determined by the Administrative Agent). Such payment by the
Borrower, however, shall be without prejudice to its rights against
such Lender. If such Lender shall pay to the Administrative Agent such
corresponding amount, such amount so paid (excluding, however, any
interest payable on such amount) shall constitute such Lender's Loan
as part of such Loans for purposes of this Agreement, which Loan shall
be deemed to have been made by such Lender on the Credit Extension
Date applicable to such Loans.
7. Section 2.5(b) of the Tranche A and Tranche C Credit Agreement is
amended by adding the following to the end thereof:
In the event that the Borrower makes a prepayment of Tranche C Loans
pursuant to this subsection (b) during the periods set forth below
(measured from the Merger Effective Date), the Borrower shall pay to
the Administrative Agent, for the pro rata account of each Tranche C
Lender, together with such prepayment, a fee (the "Prepayment Fee") in
an amount equal to the following percentages of the principal amount
of such prepayment:
---------------------------------------------------------------
FROM TO PREPAYMENT FEE
------------------ ----------------------- ----------------
Merger Effective
Date 180th day thereafter 2.00%
------------------ ----------------------- ----------------
181st day 360th day 1.50%
------------------ ----------------------- ----------------
361st day 541st day 1.00%
------------------ ----------------------- ----------------
542nd day 722nd day 0.50%
------------------ ----------------------- ----------------
Thereafter 0.00%
------------------ ----------------------- ----------------
8. Section 3.6(c) of the Credit Agreement is amended by adding immediately
prior to the period appearing at the end thereof the following:
or if such Foreign Credit Party is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and intends to claim exemption from
U.S. Federal withholding tax under Section 871(h) or 881(c) of the
Code with respect to payments of "portfolio interest", a Form W-8 or
any subsequent versions thereof or successors thereto (and, if such
Foreign Credit Party delivers a Form W-8, a certificate representing
that such Foreign Credit Party is not a bank for purposes of Section
881(c) of the Code, is not a 10-percent shareholder (within the
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meaning of Section 871(h)(3)(B) of the Code of the Borrower and is not
a controlled foreign corporation related to the Borrower (within the
meaning of Section 864(d)(4) of the Code)), properly completed and
duly executed by such Foreign Credit Party claiming complete exemption
from, or a reduced rate of, U.S. Federal withholding tax on payments
of interest by the Borrower under this Agreement and the other Loan
Documents
9. Section 4.7 of the Credit Agreement is amended by replacing the phrase
"the Subordinated Indenture" appearing twice in such section with the phrase
"the Subordinated Indenture, the New Arch Indenture (if existing), the
Replacement Indenture (if existing)".
10. Section 4.22 of the Credit Agreement is amended by replacing the phrase
"and any Replacement Indenture" appearing in such section with the phrase "the
New Arch Indenture (if existing) and any Replacement Indenture (if existing)".
11. Section 4.24 of the Credit Agreement is amended by replacing the phrase
"the Existing Arch Indentures" appearing in such section with the phrase "the
Existing Arch Indentures, the New Arch Indenture (if existing)".
12. Section 6 of the Credit Agreement is amended by adding a new Section
6.4 to read as follows:
6.4 Additional Tranche C Loans; Proposed Aggregate Tranche A
Commitment Increase.
As an additional condition precedent to the obligation of
(i) the Additional Tranche C Lenders to make Additional Tranche C
Loans, and (ii) Tranche A Lenders to make Tranche A Loans under
the Proposed Aggregate Tranche A Commitment Increase (as defined
in Amendment No. 1), the conditions precedent to the consummation
of the MobileMedia Merger as set forth in Section 8.3(iv) shall
have been satisfied (prior to or simultaneously) or waived in
accordance with the provisions of Section 11.1.
13. Section 7.15 of the Credit Agreement is amended in its entirety to read
as follows:
7.15. Total Leverage Ratio.
(a) For the period from the Second Restatement Date until
the Merger Effective Date or, if the Merger Effective Date does not
occur, for the period on and after the Second Restatement Date:
(i) At all times prior to the Existing Arch Senior Note
Termination Date, maintain, or cause to be maintained, during the
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periods set forth below, a Total Leverage Ratio of not greater than
the ratios set forth below:
Periods Ratio
------- -----
Second Restatement Date through
June 29, 1999 5.25:1.00
June 30, 1999 through
June 29, 2000 5.00:1.00
June 30, 2000 through
June 29, 2001 4.50:1.00
June 30, 2001 through
June 29, 2002 4.00:1.00
June 30, 2002 and
thereafter 3.50:1.00,
(ii) At all times on and after the Existing Arch Senior
Note Termination Date, maintain, or cause to be maintained, a Total
Leverage Ratio of not greater than 5.00:1.00.
(b) On and after the Merger Effective Date:
(i) At all times prior to the Existing Arch Senior Note
Termination Date, maintain, or cause to be maintained, during the
periods set forth below, a Total Leverage Ratio of not greater than
the ratios set forth below:
Periods Ratio
------- -----
Second Restatement Date through
June 29, 1999 5.00:1.00
June 30, 1999 through
December 30, 1999 4.75:1.00
December 31, 1999 through
June 29, 2000 4.50:1.00
June 30, 2000 through
June 29, 2001 4.25:1.00
June 30, 2001 through
June 29, 2002 4.00:1.00
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June 30, 2002 and
thereafter 3.50:1.00,
(ii) At all times on and after the Existing Arch Senior
Note Termination Date, maintain, or cause to be maintained, a Total
Leverage Ratio of not greater than 5.00:1.00.
14. Section 8.1(viii) of the Credit Agreement is hereby amended to read as
follows:
(viii) Indebtedness of Arch under (A) the Existing Arch Senior Notes,
(B) the Arch 12 3/4% Senior Notes, (C) the New Arch Notes (if
existing), provided that (1) the proceeds thereof shall be used in
connection with the consummation of the MobileMedia Merger or (2) if
the Merger Agreement is terminated, expires or is no longer in effect,
the proceeds thereof shall be used to repay Tranche C Loans or
permanently reduce the Aggregate Tranche A Commitments or the
Aggregate Tranche B Commitments, and (D) the Replacement Notes (if
existing), provided that the principal amount of any such Replacement
Notes shall not exceed the principal amount of the Existing Arch
Senior Notes, the Arch 12 3/4% Senior Notes or the New Arch Notes
repaid with the proceeds thereof, and
15. Section 8.3 of the Credit Agreement is amended in its entirety to read
as follows:
8.3. Merger.
Consolidate with, be acquired by, or merge into or with any
Person, or sell, lease or otherwise dispose of all or substantially
all of its Property or any of its Stock or otherwise alter or modify
its corporate name, structure, status or existence, or permit any of
its Subsidiaries so to do, except:
(i) prior to the Existing Arch Senior Note Termination Date,
Arch and any of its Subsidiaries (other than Benbow Investments until
such time as Benbow Investments ceases to be an Unrestricted
Subsidiary under and as defined in the Existing Arch Senior
Indentures, has become a Subsidiary Guarantor and has granted a
security interest to the Collateral Agent in its assets) may merge or
consolidate with, or transfer all or substantially all of its assets
to, Arch or any such Subsidiary, provided that in any merger involving
the Borrower, the Borrower shall be the survivor;
(ii) on and after the Existing Arch Senior Note Termination
Date, the Borrower and any of its Subsidiaries may merge or
consolidate with, or transfer all or substantially all of its assets
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to, the Borrower or any such Subsidiary, provided that (A) the
Administrative Agent shall have received ten days' prior written
notice thereof, (B) immediately before and after giving effect thereto
no Default or Event of Default shall exist and (C) in any merger
involving the Borrower, the Borrower shall be the survivor;
(iii) at all times, (A) sales of Property to the extent
permitted under Section 8.8 and (B) mergers involving Subsidiaries of
the Borrower as part of an Acquisition permitted by Section 8.6,
provided that no Stock is issued in connection therewith except to the
extent permitted by Section 8.13; and
(iv) Farm Team may consummate the MobileMedia Merger subject
to the prior or simultaneous fulfillment of the following conditions
precedent:
(A) Evidence of Action by MobileMedia Corp. and its
Subsidiaries. The Administrative Agent shall have received a
certificate, dated as of the Merger Effective Date, of the Secretary
or Assistant Secretary of each of MobileMedia Corp. and each of its
Subsidiaries (including Delaware Subsidiary): (1) attaching a true and
complete copy of the resolutions of its Board of Directors and of all
documents evidencing other necessary corporate action (in form and
substance satisfactory to the Administrative Agent) taken by it to
authorize the MobileMedia Transaction Documents and the Loan Documents
to which it is a party and the consummation of the transactions
contemplated thereby, (2) attaching a true and complete copy of its
certificate of incorporation and by-laws, (3) setting forth the
incumbency of its officer or officers who may sign the Loan Documents,
including therein a signature specimen of such officer or officers and
(4) attaching a certificate of good standing of the Secretary of State
of the jurisdiction of its incorporation and of each other state in
which it is qualified to do business, together with such other
documents as the Administrative Agent shall require.
(B) Evidence of Action by the Parent, Arch, the
Borrower and Farm Team. The Administrative Agent shall have received a
certificate, dated as of the Merger Effective Date, of the Secretary
or Assistant Secretary of each of the Parent, Arch, the Borrower and
Farm Team: (1) attaching a true and complete copy of the resolutions
of its Board of Directors and of all documents evidencing other
necessary corporate action (in form and substance satisfactory to the
Administrative Agent) taken by it to authorize the MobileMedia
Transactions Documents to which it is a party, and, in the case of
Arch, the New Arch Indenture, and the consummation of the MobileMedia
Transactions and all other transactions contemplated thereby, (2) in
the case of Farm Team, attaching a true and complete copy of its
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certificate of incorporation and by-laws, and, in the case of the
Parent, Arch and the Borrower, as to its certificate of incorporation
and by-laws having not been amended, modified or changed in any manner
since the Second Restatement Date, or, if so, setting forth the same,
(3) setting forth the incumbency of its officer or officers who may
sign such MobileMedia Transaction Documents and Loan Documents,
including therein a signature specimen of such officer or officers and
(4) attaching a certificate of good standing of the Secretary of State
of the jurisdiction of its incorporation and of each other state in
which it is qualified to do business, together with such other
documents as the Administrative Agent shall require.
(C) New Arch Notes; Officer's Certificate. Arch shall
have (1) issued additional notes (the "New Arch Notes") on terms and
conditions satisfactory to the Managing Agents, (2) received proceeds
in an amount not less than $120,000,000 (less customary underwriting
discounts, commissions and related expenses) therefrom, and (3) the
Administrative Agent shall have received a certificate of a Financial
Officer of the Borrower, dated the Merger Effective Date, in all
respects satisfactory to the Administrative Agent as to the foregoing
matters and attaching a true, complete and correct copy of each of the
indenture or other documents executed and delivered in connection with
the issuance of the New Arch Notes (collectively, the "New Arch
Indenture") and a copy of the Offering Memorandum or other disclosure
document, if any, in respect thereof, each of which shall be in form
and substance satisfactory to the Managing Agents.
(D) Cash Flows. (1) The combined Operating Cash Flow
and operating cash flow of MobileMedia Corp. and its Subsidiaries
(calculated in a manner consistent with the calculation of Operating
Cash Flow) on an annualized basis for the three month period ending on
the Merger Effective Date or, if the Merger Effective Date is not the
last day of a month, for the immediately preceding three month period
shall not be less than $225,000,000, (2) the aggregate number of
Pagers in Service of MobileMedia Corp. and its Subsidiaries and the
Borrower and its Subsidiaries on a combined basis as of the Merger
Effective Date shall not be less than $7,000,000, and (3) the
Administrative Agent shall have received a certificate of a Financial
Officer of the Borrower (including calculations in reasonable detail)
to the foregoing effect in form and substance satisfactory to the
Managing Agents.
(E) Corporate, Tax, Capital and Ownership Structure.
The corporate, tax, capital and ownership structure (including
articles of incorporation and by-laws), shareholders agreements and
management of the Parent, Arch, the Borrower and its Subsidiaries
before and after the consummation of the MobileMedia Transactions and
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the issuance of the New Arch Notes shall be satisfactory to the
Managing Agents.
(F) Maximum Cash Price. The cash portion of the
purchase price to be paid by the Parent or any of its Subsidiaries in
connection with the MobileMedia Transactions (including transactions
fees and expenses) shall not exceed (1) if the Merger Effective Date
is on or before December 31, 1998, $575,000,000, and (2) if the Merger
Effective Date is after December 31, 1998, $585,000,000, in each case
of which at least $217,000,000 consists of the net proceeds of the
Rights Offering.
(G) Rights Offering. The Parent shall have completed
Rights Offering and shall have received not less than $217,000,000 in
net proceeds thereof, and the Administrative Agent shall have received
a certificate of a Financial Officer of the Borrower to the foregoing
effects in form and substance satisfactory to the Managing Agents.
(H) MobileMedia Tower Sale. The MobileMedia Tower Sale
shall have been consummated and the net proceeds thereof received by
MobileMedia Corp. and its Subsidiaries shall not be less than
$165,000,000 and the Administrative Agent shall have received a
certificate of a Financial Officer of the Parent or Pre-Merger
MobileMedia to the foregoing effects in form and substance
satisfactory to the Managing Agents.
(I) Confirmation Order. The Administrative Agent shall
have received a court certified copy of the Confirmation Order, which
Confirmation Order shall be satisfactory to the Managing Agents and
shall have been in full force and effect for 11 days without any
modification or amendment or stay thereof, and there shall not be
pending any appeal or request for rehearing other than those which, in
the opinion of the Managing Agents in their sole discretion, would
not, individually or in the aggregate, have a material adverse effect
on (w) the business, property, financial condition, operations,
projections or prospects of the Parent and its Subsidiaries on a
consolidated basis, Arch and its Subsidiaries on a consolidated basis
or MobileMedia and its Subsidiaries on a consolidated basis; (x) the
legality, validity or enforceability of any of the Loan Documents, (y)
the ability of the Borrower to repay its obligations under the Loan
Documents or of any other Loan Party to perform its obligations under
the Loan Documents, or (z) the rights and remedies of the Lenders
under the Loan Documents.
(J) Absence of Litigation. There shall be no
injunction, writ, preliminary restraining order or other order of any
nature issued by any Governmental Body in any respect affecting the
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transactions contemplated by the MobileMedia Transaction Documents and
the Loan Documents and no action or proceeding by or before any
Governmental Body shall have been commenced and be pending or, to the
knowledge of the Borrower or Arch, be threatened, seeking to prevent
or delay the transactions contemplated by the MobileMedia Transaction
Documents and the Loan Documents or challenging any other terms and
provisions hereof or thereof or seeking any damages in connection
therewith which would, in the opinion of the Managing Agents in their
sole discretion, individually or in the aggregate, have a material
adverse effect on (w) the business, property, financial condition,
operations, projections or prospects of the Parent and its
Subsidiaries on a consolidated basis, Arch and its Subsidiaries on a
consolidated basis or MobileMedia and its Subsidiaries on a
consolidated basis; (x) the legality, validity or enforceability of
any of the Loan Documents, (y) the ability of the Borrower to repay
its obligations under the Loan Documents or of any other Loan Party to
perform its obligations under the Loan Documents, or (z) the rights
and remedies of the Credit Parties under the Loan Documents.
(K) No Change of Control. The consummation of the
MobileMedia Transactions shall not constitute a Change of Control and
the Administrative Agent shall have received a certificate of a
Financial Officer of Arch to such effect.
(L) No Default; Representations and Warranties. The
Administrative Agent shall have received a certificate of the
President, a Vice President or a Financial Officer of the Parent,
dated the Merger Effective Date, in all respects satisfactory to the
Administrative Agent certifying that as of the Merger Effective Date
(A) no Default exists and (B) the representations and warranties
contained in the Loan Documents are true and correct, except to the
extent such representations and warranties specifically relate to an
earlier date, in which case such representations and warranties shall
have been true and correct on and as of such earlier date.
(M) Absence of Adverse Changes.
(1) (a) Neither the Parent, Arch, the Borrower nor
any of their respective Subsidiaries shall have sustained since
December 31, 1997 (or (i) June 24, 1998, to the extent such matter is
disclosed in the Offering Memorandum dated June 24, 1998 with respect
to the Arch 12 3/4% Senior Notes or (ii) June 29, 1998, to the extent
such matter is disclosed in the current reports on Form 8-K of the
Parent and Arch filed on June 29, 1998) any loss or interference with
its respective business from fire, explosion, flood or other calamity,
whether or not covered by insurance or from any labor dispute or court
or governmental action order, or decree, (b) since such date there
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shall not have been a material increase in short-term debt or
long-term debt of the Parent, Arch, the Borrower or any of their
respective Subsidiaries (other than debt contemplated by this
Agreement), and (c) since such date there shall not have been any
change, or any development involving a prospective change, that could
reasonably be expected in the opinion of the Managing Agents to result
in a material adverse effect on (i) the business, property, financial
condition, operations, projections or prospects of the Parent and its
Subsidiaries on a consolidated basis, Arch and its Subsidiaries on a
consolidated basis; (ii) the legality, validity or enforceability of
any of the Loan Documents, (iii) the ability of the Borrower to repay
its obligations under the Loan Documents or of any other Loan Party to
perform its obligations under the Loan Documents, or (iv) the rights
and remedies of the Credit Parties under the Loan Documents.
(2) (a) Neither MobileMedia nor any of its
Subsidiaries shall have sustained since December 31, 1997, any loss or
interference with its respective business from fire, explosion, flood
or other calamity, whether or not covered by insurance or from any
labor dispute or court or governmental action order, or decree (other
than litigation before the Bankruptcy Court which litigation is
disposed of pursuant to the Confirmation Order (described above) other
than as set forth in its audited financial statements as of that date,
(b) since such date there shall not have been a material increase in
short-term debt or long-term debt of MobileMedia or any of its
Subsidiaries (other than pursuant to the MobileMedia DIP Loan
Documents as in effect on the date hereof, as permitted in the
MobileMedia Merger Documents), and (c) since such date there shall not
have been any change, or any development involving a prospective
change, that could reasonably be expected in the opinion of the
Managing Agents to result in a material adverse effect on (i) the
business, property, financial condition, operations, projections or
prospects of MobileMedia and its Subsidiaries on a consolidated basis;
(ii) the legality, validity or enforceability of any of the Loan
Documents, (iii) the ability of the Borrower to repay its obligations
under the Loan Documents or of any other Loan Party to perform its
obligations under the Loan Documents, or (iv) the rights and remedies
of the Credit Parties under the Loan Documents.
(N) Financial Projections. The Administrative Agent
shall have received financial projections of (1) the Parent and its
Subsidiaries on a consolidated basis, (2) Arch and its Subsidiaries on
a consolidated basis and (3) the Borrower and its Subsidiaries on a
consolidated basis, in each case for the period through the Tranche C
Maturity Date, each in form and substance satisfactory to the Managing
Agents.
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(O) FCC Order. The Administrative Agent shall have
received an order of the FCC approving the transfer of the FCC
licenses held by Pre-Merger MobileMedia and its Subsidiaries to the
Borrower or any of its Subsidiaries and terminating the FCC
Proceeding, which order shall be a Final Order or, if such order is
not an Final Order, Required Lenders shall have consented to the
consummation of the MobileMedia Transactions.
(P) Approvals and Consents. All approvals and consents
of all Persons required to be obtained prior to the Merger Effective
Date in connection with the consummation of the transactions
contemplated by the Transaction Documents have been obtained and all
required notices have been given and all required waiting periods have
expired, including, without limitation, under the HSR Act (or
expiration of applicable waiting periods), and no provision of any
applicable statute, law, rule or regulation of any Governmental Body
will prevent the execution, delivery or performance of, or affect the
validity of, the Transaction Documents and the Administrative Agent
shall have received a certificate of an officer of the Parent to the
foregoing effects.
(Q) Existing MobileMedia Debt; Claims. (1) The Existing
MobileMedia Debt shall have been paid in full or discharged, (2) each
of the Dial Page Indenture, the Dial Page Notes, the MobileMedia 1995
Loan Documents, the MobileMedia DIP Loan Documents, the MobileMedia 9
3/8% Note Indenture, the MobileMedia 9 3/8% Notes, the MobileMedia 10
1/2% Note Indenture and the MobileMedia 10 1/2% Notes shall have been
cancelled or terminated, (3) all other claims and liabilities of
MobileMedia Corp. and its Subsidiaries shall have been discharged
except to the extent provided in the Confirmation Order and the
Amended Plan, (4) all Liens securing any of the Existing MobileMedia
Debt or such other claims shall have been terminated, and (5) the
Administrative Agent shall have received satisfactory evidence of the
foregoing.
(R) Search Reports and Related Documents. The
Administrative Agent shall have received (1) such UCC, tax, patent,
trademark and judgment lien search reports with respect to such
applicable public offices where Liens are filed, as shall be
acceptable to the Administrative Agent, disclosing that there are no
Liens of record in such official's office covering any Collateral or
showing MobileMedia Corp. or any of its Subsidiaries as a debtor
thereunder (other than Liens being released in connection with the
repayment of Existing MobileMedia Debt or otherwise being discharged
pursuant to the Confirmation Order and Permitted Liens), (2) a
certificate of the Parent, dated the Merger Effective Date, certifying
that, as of the Merger Effective Date, there will exist no Liens on
the Collateral other than Permitted Liens, and (3) such Uniform
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Commercial Code financing statements or financing statement
amendments, executed by the appropriate Loan Party, as shall be
reasonably requested by the Administrative Agent.
(S) Consummation of MobileMedia Transactions.
(1) Each of the conditions precedent contained in
the MobileMedia Transaction Documents to the consummation of the
MobileMedia Transactions shall have been satisfied (with no waiver of
any condition thereof without the prior written consent of the
Managing Agents), and, substantially simultaneously with the making of
the Tranche A Loans, Tranche B Loans and the Additional Tranche C
Loans on the Merger Effective Date, the MobileMedia Transactions
(other than the MobileMedia Dropdown) shall have been consummated in
accordance with the terms of the MobileMedia Transaction Documents and
all applicable laws, governmental policies, rules and regulations.
(2) All representations and warranties made in the
MobileMedia Transaction Documents by the Parent, Farm Team,
MobileMedia Corp. and Pre-Merger MobileMedia shall be true and correct
in all material respects.
(3) The Administrative Agent shall have received a
certificate of the Secretary or Assistant Secretary of the Parent, in
all respects satisfactory to the Administrative Agent, (a) attaching a
true and complete copy of each of the fully executed MobileMedia
Merger Documents, all of which shall be satisfactory to the Managing
Agents, and (b) certifying that (i) each MobileMedia Merger Document
is in full force and effect, (ii) no default or event of default by
the Parent or the Borrower or, to the best of the knowledge of the
Parent and the Borrower, any other party, has occurred and is
continuing thereunder, and (iii) each of the conditions specified in
clauses (1) and (2) of this subsection (S) has been satisfied,
provided, however, that with respect to the representations and
warranties made in the MobileMedia Transaction Documents by
MobileMedia Corp. or any of its Subsidiaries, such certification shall
be made to the best knowledge of the Parent.
(4) The MobileMedia Merger shall occur on or
before March 31, 1999.
(5) The MobileMedia Merger Certificate shall have
been filed with the Secretary of State of the State of Delaware, which
certificate shall also change the name of Farm Team to "MobileMedia
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Communications, Inc." and which certificate shall comply as to form
and substance with the General Corporation Law of Delaware.
(6) Each of the MobileMedia Subsidiary Merger
Certificates shall have been filed with the applicable Governmental
Body, each of which certificates shall comply as to form and substance
with applicable state law and which certificate, in the case of the
merger of Pre-Merger MMCA with and into Delaware Subsidiary, shall
also change its name to "MobileMedia Corporation of America".
(T) Subsidiary Guaranty. The Administrative Agent shall
have received a Supplement to the Subsidiary Guaranty duly executed by
each of MobileMedia and each of its Subsidiaries.
(U) Escrow Agreement. The Escrow Agent shall have
received the following documents and instruments: (1) the Unrestricted
Subsidiary Security Agreement (Bank), the Unrestricted Subsidiary
Security Agreement (9 1/2% Indenture) and the Unrestricted Subsidiary
Security Agreement (14% Indenture), each duly executed by the parties
thereto, (2) certificates representing all of the issued and
outstanding shares of capital Stock of MobileMedia and each of its
Subsidiaries and undated stock powers with respect thereto duly
executed in blank by the applicable Loan Parties, (3) instruments
constituting the Pledged Debt (under and as defined in each of the
Triggering Collateral Documents), including the MobileMedia
Intercompany Note, indorsed in blank by the applicable Loan Party, (4)
the Triggering Collateral Documents and the Indenture Collateral
Documents, in each case duly executed by each of the parties thereto,
(5) Grants of Security Interest (Trademarks), duly executed by each of
MobileMedia and each of its Subsidiaries which owns a trademark, (6)
Grants of Security Interest (Patents), duly executed by each of
MobileMedia and each of its Subsidiaries which owns a patent, (7)
Powers of Attorney, duly executed by each of the MobileMedia and each
of its Subsidiaries, (8) duly executed UCC-1 Financing Statements with
respect to the Collateral for filing in each office as determined by
the Administrative Agent and naming the Collateral Agent as "Secured
Party", (9) additional sets of UCC-1 Financing Statements in all
respects identical to UCC- 1 Financing Statements referred to in
clause (8) above except that the Applicable Arch Indenture Trustees
are named as "Secured Party" and (10) all executed original
counterparts of each Triggering Collateral Document and each Indenture
Collateral Document.
(V) Due Diligence. The Managing Agents' legal,
environmental and tax due diligence investigations with respect to the
Parent, Arch, the Borrower and their respective Subsidiaries,
MobileMedia Corp. and its Subsidiaries, the MobileMedia Transactions
shall be satisfactory in all respects to the Managing Agents, and any
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supplemental business, financial or accounting due diligence that any
of the Managing Agents determines has become necessary shall not have
disclosed information not previously disclosed to the Managing Agents
which causes the results of such diligence not to be satisfactory in
all respects to the Managing Agents.
(W) Replacement Schedules. The Administrative Agent
shall have received replacement Schedules 4.1, 8.2 and 8.6 to each
Credit Agreement, each in form and substance satisfactory to the
Administrative Agent.
(X) Opinions of Counsel to the Loan Parties. The
Administrative Agent shall have received an opinion of (A) Hale and
Dorr, counsel to the Loan Parties, and (B) Garry Watzke, Esq., General
Counsel of the Loan Parties, each addressed to the Administrative
Agent, the other Credit Parties and Special Counsel, dated the Merger
Effective Date and in form and substance satisfactory to the
Administrative Agent.
(Y) Opinions of FCC Counsel. The Administrative Agent
shall have received an opinion of Wilkinson, Barker, Knauer & Quinn,
LLP, FCC counsel to Arch and its Subsidiaries, addressed to the
Administrative Agent and the other Credit Parties, dated the Merger
Effective Date and in form and substance satisfactory to the
Administrative Agent.
(Z) Fees. All fees payable on the Merger Effective Date
shall have been paid, including the reasonable fees and expenses of
Special Counsel.
(AA) Other Documents. The Administrative Agent shall
have received such other documents and assurances as the
Administrative Agent shall reasonably require.
16. Section 8.6 of the Credit Agreement is amended by deleting the word
"and" at the end of subsection (m) and adding it to the end of subsection (n)
and by adding a new subsection (o) to each thereof to read as follows:
(o) the MobileMedia Transactions to the extent permitted by
Section 8.3(iv).
17. Section 8.15 of the Credit Agreement is amended by replacing the phrase
"the Replacement Notes, the Replacement Indenture" appearing in such section
with the phrase "the Replacement Notes (if existing), the Replacement Indenture
(if existing), the New Arch Notes (if existing), the New Arch Indenture (if
existing)".
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18. Section 9.1(d) of the Credit Agreement is amended in its entirety to
read as follows:
(d) The failure of any Loan Party to observe or perform any
covenant or agreement contained in Section 7.2(f), 7.3, 7.11, 7.12,
7.13, 7.14, 7.15, 7.16, 7.17, 7.18, 7.19 or 7.20, Section 8 or Section
11.1 of this Agreement, Section 2 of the Subsidiary Guaranty, Section
2 or 8(o) of the Parent Guaranty or Section 2 or 5(o) of the Arch
Guaranty; or
19. Section 9.1(m) of the Credit Agreement is hereby amended to read as
follows:
(m)(i) The FCC or any other Governmental Body cancels or revokes
any of Arch's or any of its Subsidiaries' material licenses, or fails
to renew any such license or licenses, which cancellation, revocation
or failure to renew could reasonably be expected to have a Material
Adverse Effect; or
(ii) If Required Lenders have consented to the consummation
of the MobileMedia Transactions at a time when the FCC order approving
the transfer of all material licenses of MobileMedia and its
Subsidiaries to the Borrower or any of its Subsidiaries and
terminating the FCC Proceeding is not a Final Order, the withdrawal or
modification in any material respect of the order in effect at the
time of the consummation of the MobileMedia Transactions; or
20. Section 11.1(b)(iii)(A) of the Credit Agreement is hereby amended by
inserting immediately prior to the comma appearing at the end thereof the phrase
"or increase the aggregate outstanding principal amount of the Tranche C Loans
to an amount greater than the aggregate outstanding principal amount of Tranche
C Loans as of the Merger Effective Date after giving effect to the making of the
Additional Tranche C Loans".
21. Section 11.12 of the Credit Agreement is hereby amended in its entirety
to read as follows:
11.12 Confidentiality.
Each of the Administrative Agent and the other Credit
Parties agrees (on behalf of itself and each of its affiliates,
directors, officers, employees and representatives) to use reasonable
precautions to keep confidential, in accordance with their customary
procedures for handling confidential information of the same nature,
all non-public information supplied by Arch, the Borrower or any of
their respective Subsidiaries pursuant to this Agreement which (a) is
identified by such Person as being confidential at the time the same
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is delivered to such Credit Party or the Administrative Agent, or (b)
constitutes any financial statement, financial projections or
forecasts, budget, compliance certificate, audit report, management
letter or accountants' certification delivered hereunder
(collectively, the "Confidential Information"), provided, however,
that nothing herein shall limit the disclosure of any Confidential
Information (i) to the extent required by statute, rule, regulation or
judicial process, (ii) on a confidential basis, to counsel to any of
the Credit Parties or the Administrative Agent, (iii) to bank
examiners and other governmental bodies or examiners having
jurisdiction over such Credit Party, auditors or accountants, and any
analogous counterpart thereof, (iv) to the Administrative Agent or the
Credit Parties, (v) in connection with any litigation to which any one
or more of the Credit Parties or the Administrative Agent is a party,
provided that if practicable to do so under the circumstances, Arch or
the Borrower, as the case may be, is given prior notice of, and an
opportunity to contest, the production of such Confidential
Information (which such notice and opportunity shall be reasonable
under the circumstances), (vi) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) agrees in writing
to keep such Confidential Information confidential on substantially
the same basis as set forth in this Section, or (vii) to affiliates of
the Administrative Agent or each Credit Party. Notwithstanding the
provisions of clause (vii) above, neither the Administrative Agent nor
any Credit Party shall disclose any such Confidential Information to
any of its respective affiliates, directors, officers, employees or
representatives except to the extent that it or they have a need to
know such Confidential Information in connection with the structuring
or administration of the Loans or any Loan Document, any assignment or
participation thereof or activities incidental thereto.
22. Exhibit E to the Credit Agreement is hereby replaced with the new
Exhibit E in the form annexed hereto, and Exhibits L-1, L-2, and L-3 to the
Credit Agreement are hereby replaced with new Exhibits L-1, L-2, and L-3, each
revised so as to add "patents" to the Collateral and each in form and substance
satisfactory to the Administrative Agent.
23. Barclays Bank PLC is hereby appointed as an additional Managing Agent,
and such defined term "Managing Agent" in the Credit Agreement is hereby amended
so as to include Barclays Bank PLC.
24. Notwithstanding the provisions of Section 11.5 of the Credit Agreement,
each Lender hereby agrees that it shall not assign nor grant any participation
in (other than to a Federal Reserve Bank) any of its rights or obligations under
any Loan Document (other than with respect to (a) the Proposed Aggregate Tranche
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A Commitment Increase, (b) the Proposed Aggregate Tranche B Commitment Increase,
as defined in the Tranche B Credit Agreement Amendment, and (c) the Proposed
Additional Tranche C Loans) during the period from the Amendment Effective Date
through and including the earlier of (i) December 1, 1998, and (ii) the date on
which the Managing Agents notify the Borrower, the Lenders and any prospective
lender of the allocation of the Proposed Facility Increase Maximum Amount in
connection with the "primary syndication" thereof. For the purposes of this
paragraph, the "primary syndication" shall mean a primary syndication conducted
in a manner consistent with customary practice for syndications of similar
facilities, including the scheduling and holding of a bank meeting, a period for
the receipt of commitments and the final allocation of commitments.
25. Each Credit Party and each Loan Party hereby agrees and consents to the
Tranche B Credit Agreement Amendment, the Arch Guaranty Amendment, the Parent
Guaranty Amendment and the Collateral Document Amendments.
26. Paragraphs 1- 25 of this Amendment shall not be effective until the
prior or simultaneous fulfillment of the following conditions (the "Amendment
Effective Date"):
(a) The Administrative Agent shall have received this Amendment,
duly executed by a duly authorized officer or officers of the
Borrower, the Parent, the Subsidiary Guarantors, the Administrative
Agent and each other Credit Party.
(b) The Administrative Agent shall have received Amendment No. 1,
dated the date hereof, to the Tranche B Credit Agreement (the "Tranche
B Credit Agreement Amendment"), duly executed by a duly authorized
officer or officers of the Borrower, the Parent, the Subsidiary
Guarantors, the Administrative Agent and each other Credit Party (each
under and as defined in the Tranche B Credit Agreement).
(c) The Administrative Agent shall have received Amendment No. 1,
dated the date hereof, to the Arch Guaranty (the "Arch Guaranty
Amendment"), duly executed by a duly authorized officer or officers of
Arch and the Collateral Agent, in form and substance satisfactory to
the Administrative Agent.
(d) The Administrative Agent shall have received Amendment No. 1,
dated the date hereof, to the Parent Guaranty (the "Parent Guaranty
Amendment"), duly executed by a duly authorized officer or officers of
the Parent and the Collateral Agent, in form and substance
satisfactory to the Administrative Agent.
(e) The Administrative Agent shall have received a certificate of
the Secretary or Assistant Secretary of each of Loan Party: (i)
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attaching a true and complete copy of the resolutions of its Managing
Person authorizing this Amendment and the Collateral Document
Amendments (as defined below), in form and substance satisfactory to
the Administrative Agent, (ii) certifying that its certificate of
incorporation and by-laws have not been amended since June 29, 1998,
or, if so, setting forth the same and (iii) setting forth the
incumbency of its officer or officers who may sign this Amendment and
the Collateral Document Amendments, including therein a signature
specimen of such officer or officers.
(f) The Administrative Agent shall have received (i) Amendment
No. 1 to the Borrower Security Agreement (Bank), (ii) Amendment No. 1
to the Arch Security Agreement (Bank), (iii) Amendment No. 1 to the
Restricted Subsidiary Security Agreement (Bank), each amended so as to
add "patents" to the Collateral and each in form and substance
satisfactory to the Administrative Agent (the "Triggering Collateral
Document Amendments") and (iv) UCC-3 Amendments as shall be required
by the Administrative Agent.
(g) The Escrow Agent shall have received (i) Amendment No. 1 to
the Borrower Security Agreement (9 1/2% Indenture), (ii) Amendment No.
1 to the Borrower Security Agreement (14% Indenture), (iii) Amendment
No. 1 to the Arch Security Agreement (9 1/2% Indenture, (iv) Amendment
No. 1 to the Arch Security Agreement (14% Indenture), (v) Amendment
No. 1 to the Restricted Subsidiary Security Agreement (9 1/2%
Indenture) (14% Indenture), (vi) Amendment No. 1 to the Restricted
Subsidiary Security Agreement (14% Indenture), each amended so as to
add "patents" to the Collateral and each in form and substance
satisfactory to the Administrative Agent (the "Escrow Collateral
Document Amendments", and together with the Triggering Collateral
Document Amendments, the "Collateral Document Amendments") and (vii)
UCC-3 Amendments as shall be required by the Administrative Agent.
(h) The Administrative Agent shall have received an (i) opinion
of Hale and Dorr, counsel to the Loan Parties, and (ii) an opinion of
Garry Watzke, Esq., General Counsel of the Loan Parties, and each in
form and substance satisfactory to the Administrative Agent.
(i) All fees and expenses payable on the effectiveness of this
Amendment, including the reasonable fees and expenses of Special
Counsel incurred to date, shall have been paid.
(j) The representations and warranties contained in the Loan
Documents shall be true and correct in all material respects (except
to the extent such representations and warranties specifically relate
to an earlier date) and no Default or Event of Default shall exist,
and the Administrative Agent shall have received a certificate of an
officer of the Borrower, dated the Amendment Effective Date,
certifying to such effect.
- 32 -
<PAGE>
(k) The Administrative Agent shall have received such other
documents as it shall reasonably request.
27. The Borrower and the Parent each hereby (i) reaffirms and admits the
validity and enforceability of the Credit Agreement (as amended by this
Amendment) and the other Loan Documents and all of its obligations thereunder,
(ii) represents and warrants that there exists no Default or Event of Default,
and (iii) represents and warrants that the representations and warranties
contained in the Loan Documents, including the Credit Agreement as amended by
this Amendment (other than the representations and warranties made as of a
specific date) are true and correct in all material respects on and as of the
date hereof, except to the extent that such representations and warranties are
no longer true or correct as a result of events, acts, transactions or
occurrences after the Second Restatement Effective Date which are permitted
under the Credit Agreement.
28. This Amendment may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute one agreement. It
shall not be necessary in making proof of this Amendment to produce or account
for more than one counterpart signed by the party to be charged.
29. This Amendment is being delivered in and is intended to be performed in
the State of New York and shall be construed and enforceable in accordance with,
and be governed by, the internal laws of the State of New York without regard to
principles of conflict of laws.
30. Except as amended hereby, the Credit Agreement shall in all other
respects remain in full force and effect.
- 33 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
1 to the Second Amended and Restated Credit Agreement (Tranche A and Tranche C
Facilities) to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
ARCH PAGING, INC.
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
THE BANK OF NEW YORK,
Individually, as Letter of Credit Issuer,
as Managing Agent and as Administrative
Agent
By: /s/ Geoffrey C. Brooks
Name: Geoffrey C. Brooks
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
TORONTO DOMINION (TEXAS), INC.,
Individually, as Managing Agent and as
Syndication Agent
By: /s/ David G. Parker
Name: David G. Parker
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
ROYAL BANK OF CANADA,
Individually, as Managing Agent and as
Documentation Agent
By: /s/ Thomas M. Byrne
Name: Thomas M. Byrne
Title: Senior Manager
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
BARCLAYS BANK PLC, Individually and as
a Managing Agent
By: /s/ Andrew Wynn
Name: Andrew Wynn
Title: Managing Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
FIRST UNION NATIONAL BANK
By: /s/ C. Mark Hedrick
Name: C. Mark Hedrick
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
Name: Jeffrey W. Maillet
Title: Sr. Vice Pres. & Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital
Management, Inc., as Collateral
Manager
By: /s/ Jeffrey W. Maillet
Name: Jeffrey W. Maillet
Title: Sr. Vice Pres. & Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Jeffrey E. Hauser
Name: Jeffrey E. Hauser
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
FLEET NATIONAL BANK
By: /s/ Jeffrey J. McLaughlin
Name: Jeffrey J. McLaughlin
Title: SVP
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
BANKBOSTON, N.A.
By: /s/ Michael A. Ashton
Name: Michael A. Ashton
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Mark F. Mylan
Name: Mark F. Mylan
Title: Manger - Operations
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/ Jorge Arrieta
Name: Jorge Arrieta
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
SOCIETE GENERALE
By: /s/ Mark Vigil
Name: Mark Vigil
Title: Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
BEAR STEARNS INVESTMENT PRODUCTS INC.
By: /s/ Harry Rosenberg
Name: Harry Rosenberg
Title: Authorized Signatory
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
MORGAN STANLEY DEAN WITTER
PRIME INCOME TRUST
By: /s/ Sheila Finnert
Name: Sheila Finnert
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
KZH CNC LLP
By: /s/ Virginia Conway
Name: Virginia Conway
Title: Authorized Agent
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ Albert Trank
Name: Albert Trank
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
CONSENTED TO BY:
ARCH MICHIGAN, INC.
ARCH CAPITOL DISTRICT, INC.
ARCH CONNECTICUT VALLEY, INC.
ARCH SOUTHEAST COMMUNICATIONS, INC.
ARCH COMMUNICATIONS SERVICES, INC.
BECKER BEEPER, INC.
THE BEEPER COMPANY OF AMERICA, INC.
LUND PRODUCTS SALES COMPANY
THE WESTLINK PAGING COMPANY OF NEW
MEXICO, INC.
KELLEY'S RADIO TELEPHONE, INC.
ANSWER IOWA, INC.
WESTLINK LICENSEE CORPORATION
WESTLINK OF NEW MEXICO LICENSEE
CORPORATION
ANSWER IOWA LICENSEE CORPORATION
KELLEY'S LICENSEE CORPORATION,
THE WESTLINK COMPANY
AS TO EACH OF THE FOREGOING:
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Tresurer
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
CONSENTED TO BY:
CASCADE MOBILE COMMUNICATIONS LIMITED
PARTNERSHIP
By: Arch Michigan, Inc., its General
Partner
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Tresurer
TELECOMM/KRT PARTNERSHIP
By: Arch Michigan, Inc., a General
Partner
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Tresurer
By: Kelley's Radio Telephone, Inc.,
a General Partner
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Tresurer
ARCH COMMUNICATIONS, INC.
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Tresurer
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
CONSENTED TO BY:
ARCH COMMUNICATIONS GROUP, INC.
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Tresurer
<PAGE>
AMENDMENT NO. 2
TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND TRANCHE C FACILITIES)
AMENDMENT NO. 2 (this "Amendment"), dated as of December 8, 1998, to the
Second Amended and Restated Credit Agreement (Tranche A and Tranche C
Facilities) (the "Credit Agreement"), dated as of June 29, 1998, by and among
Arch Paging, Inc. (the "Borrower"), the Lenders party thereto, The Bank of New
York, Royal Bank of Canada, Toronto Dominion (Texas), Inc. and Barclays Bank
PLC, as Managing Agents, Royal Bank of Canada, as Documentation Agent, Toronto
Dominion (Texas), Inc., as Syndication Agent, and The Bank of New York, as
Administrative Agent, as amended by Amendment No. 1, dated as of September 14,
1998.
RECITALS
A. Capitalized terms used herein which are not defined herein shall have
the respective meanings ascribed thereto in the Credit Agreement as amended
hereby.
B. In connection with the Bankruptcy Proceeding, the Borrower desires to
amend the terms and provisions of certain of the MobileMedia Transaction
Documents.
C. The Borrower desires to merge certain of its Subsidiaries into a single
Subsidiary within 45 days following the date hereof.
D. The Borrower desires to make an equity contribution in the amount of
$250,000 to Arch Latin America, an entity in which the Borrower has a minority
interest.
E. The Borrower requests that the Required Lenders amend the Loan Documents
so as to permit the foregoing requested activities. Accordingly, in
consideration of the Recitals and the covenants, conditions and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
1. The following definitions contained in Section 1.1 of the Credit
Agreement are amended in their entirety to read as follows:
"Amended Plan": the Debtors' Third Amended Joint Plan of
Reorganization, dated December 1, 1998, filed by MobileMedia Corp. and its
Subsidiaries in the Bankruptcy Proceeding.
"Merger Agreement": the Agreement and Plan of Merger, dated as of
August 18, 1998, by and among the Parent, Farm Team, MobileMedia Corp. and
Pre-Merger MobileMedia, as amended by the First Amendment, dated as of
<PAGE>
September 3, 1998, and by the Second Amendment, dated as of December 1,
1998.
"MobileMedia Subsidiary Transactions": collectively, all of the
transactions (other than the MobileMedia Merger) described in Section
4.2(B) of the Amended Plan.
"MobileMedia Transaction Documents": collectively, the MobileMedia
Merger Documents, the MobileMedia Subsidiary Transaction Documents, and all
other documents executed and delivered in connection with the MobileMedia
Transactions, as any such document may have been amended, supplemented or
otherwise modified on or prior to December 3, 1998.
"Standby Purchase Commitment Letters": collectively, the commitment
letters, each dated August 18, 1998, made by the Standby Purchasers
evidencing their commitments to purchase common Stock of the Parent and
Parent Warrants in the event any Rights are not exercised in the Rights
Offering, as amended by the amendment dated as of September 5, 1998 and by
the amendment dated as of December 1, 1998.
2. Section 1.1 of the Credit Agreement is amended by adding the following
definition in its appropriate alphabetical order:
"API Subsidiary Merger": the merger of certain Subsidiaries of the
Borrower into a single Subsidiary of the Borrower on terms and conditions
satisfactory to the Administrative Agent.
3. Section 7.2(f) of the Credit Agreement is amended by inserting the
parenthetical phrase "(other than with respect to the API Subsidiary Merger)"
immediately after (i) the reference to Section 8.3(i) appearing on the second
line therein, and (ii) the reference to Section 8.8(b) appearing on the fifth
line therein.
4. Section 8.3(iv)(S)(1) of the Credit Agreement is amended in its entirety
to read as follows:
(1) Each of the conditions precedent contained in the
MobileMedia Transaction Documents to the consummation of the MobileMedia
Transactions shall have been satisfied (with no waiver of any condition
thereof without the prior written consent of the Managing Agents), and,
substantially simultaneously with the making of the Tranche A Loans,
Tranche B Loans and the Additional Tranche C Loans on the Merger Effective
Date, the MobileMedia Transactions (other than the MobileMedia Dropdown)
shall have been consummated in accordance with the terms of the MobileMedia
Transaction Documents (with no amendment, supplement or other modification
to any term or provision contained therein without the prior written
consent of the Required Lenders (other than any amendment, supplement or
other modification to any nonmaterial term or provision contained therein
with the prior written consent of the Managing Agents)) and all applicable
laws, governmental policies, rules and regulations.
- 2 -
<PAGE>
5. Section 8.6 of the Credit Agreement is amended by (i) deleting the word
"and" appearing at the end of subsection (n) therein, (ii) replacing the period
appearing at the end of subsection (o) therein with "; and", and (iii) adding a
new subsection to the end thereof to read as follows:
(p) the Parent or any Subsidiary of the Parent may make a
one-time equity contribution to Arch Latin America in an amount not to
exceed $250,000, provided that no Default or Event of Default shall exist
immediately before or after giving effect thereto.
6. Each lender and each Loan Party agrees and consents to the terms of (i)
Amendment No. 2 to the Parent Guaranty, substantially in the form of Attachment
I annexed hereto ("Amendment No. 2 to the Parent Guaranty"), and (ii) Amendment
No. 2 to the Arch Guaranty, substantially in the form of Attachment II annexed
hereto ("Amendment No. 2 to the Arch Guaranty").
7. Paragraphs 1-6 of this Amendment shall not be effective until the prior
or simultaneous fulfillment of the following conditions:
(a) The Administrative Agent shall have received this Amendment duly
executed by a duly authorized officer or officers of the Borrower, the
Parent, Arch, the Subsidiary Guarantors, the Administrative Agent and the
Required Lenders.
(b) The Administrative Agent shall have received Amendment No. 2 to
the Second Amended and Restated Credit Agreement (Tranche B Facility),
dated the date hereof, duly executed by a duly authorized officer or
officers of the Borrower, the Parent, Arch, the Subsidiary Guarantors, the
Administrative Agent thereunder and the Required Lenders.
(c) The Administrative Agent shall have received Amendment No. 2 to
the Parent Guaranty, duly executed by a duly authorized officer or officers
of the Parent, the Borrower and the Collateral Agent.
(d) The Administrative Agent shall have received Amendment No. 2 to
the Arch Guaranty, duly executed by a duly authorized officer or officers
of Arch, the Borrower and the Collateral Agent.
(e) All fees and expenses payable on the effectiveness of this
Amendment, including the reasonable fees and expenses of Special Counsel
incurred to date, shall have been paid.
(f) The representations and warranties contained in the Loan Documents
shall be true and correct in all material respects (except to the extent
such representations and warranties specifically relate to an earlier date)
and no Default or Event of Default shall exist.
(g) The Administrative Agent shall have received such other documents
as it shall reasonably request.
- 3 -
<PAGE>
8. Each Loan Party hereby (i) reaffirms and admits the validity and
enforceability of each Loan Document (as it may be amended by this Amendment) to
which it is a party and all of its obligations thereunder, (ii) represents and
warrants that there exists no Default or Event of Default, and (iii) represents
and warrants that the representations and warranties contained in the Loan
Documents, including the Credit Agreement as amended by this Amendment, (other
than the representations and warranties made as of a specific date) are true and
correct in all material respects on and as of the date hereof, except to the
extent that such representations and warranties are no longer true or correct as
a result of events, acts, transactions or occurrences after the Second
Restatement Effective Date which are permitted under the Credit Agreement.
9. This Amendment may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute one agreement. It
shall not be necessary in making proof of this Amendment to produce or account
for more than one counterpart signed by the party to be charged.
10. This Amendment is being delivered in and is intended to be performed in
the State of New York and shall be construed and enforceable in accordance with,
and be governed by, the internal laws of the State of New York without regard to
principles of conflict of laws.
11. Except as amended hereby, the Credit Agreement and each other Loan
Document shall in all other respects remain in full force and effect.
[signature pages follow]
- 4 -
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
the Second Amended and Restated Credit Agreement (Tranche A and Tranche C
Facilities) to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
ARCH PAGING, INC.
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Tresurer
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
THE BANK OF NEW YORK,
Individually, as Letter of Credit Issuer,
as Managing Agent and as Administrative
Agent
By: /s/ Geoffrey C. Brooks
Name: Geoffrey C. Brooks
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
TORONTO DOMINION (TEXAS), INC.,
Individually, as Managing Agent and as
Syndication Agent
By: /s/ Anne C. Favoriti
Name: Anne C. Favoriti
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
ROYAL BANK OF CANADA,
Individually, as Managing Agent and as
Documentation Agent
By: /s/ Thomas M Byrne
Name: Thomas M. Byrne
Title: Senior Manager
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
BARCLAYS BANK PLC, Individually and as a
Managing Agent
By: /s/ Philip Capparis
Name: Philip Capparis
Title: Associate Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
FIRST UNION NATIONAL BANK
By: /s/ C. Mark Hedrick
Name: C. Mark Hedrick
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital
Management, Inc., as Collateral
Manager
By: /s/ Jeffrey W. Maillet
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Steven J. McGehrin
Name: Steven J. McGehrin
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Mark F. Mylon
Name: Mark F. Mylon
Title: Manager - Operations
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
SOCIETE GENERALE
By: /s/ Mark Vigil
Name: Mark Vigil
Title: Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
BEAR STEARNS INVESTMENT PRODUCTS INC.
By: /s/Gregory Hamey
Name: Gregory Hamey
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
MORGAN STANLEY DEAN WITTER
PRIME INCOME TRUST
By: /s/ Sheila A. Finnerty
Name: Sheila A. Finnerty
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
KZH CNC LLC
By: /s/ Dennis Kildea
Name: Dennis Kildea
Title: Authorized Agent
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ B. Ross Smead
Name: B. Ross Smead
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
CONSENTED TO BY:
ARCH MICHIGAN, INC.
ARCH CAPITOL DISTRICT, INC.
ARCH CONNECTICUT VALLEY, INC.
ARCH SOUTHEAST COMMUNICATIONS, INC.
ARCH COMMUNICATIONS SERVICES, INC.
BECKER BEEPER, INC.
THE BEEPER COMPANY OF AMERICA, INC.
LUND PRODUCTS SALES COMPANY
THE WESTLINK PAGING COMPANY OF NEW
MEXICO, INC.
KELLEY'S RADIO TELEPHONE, INC.
ANSWER IOWA, INC.
WESTLINK LICENSEE CORPORATION
WESTLIK OF NEW MEXICO LICENSEE
CORPORATION
ANSWER IOWA LICENSEE CORPORATION
KELLEY'S LICENSEE CORPORATION,
THE WESTLINK COMPANY
AS TO EACH OF THE FOREGOING:
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
CONSENTED TO BY:
CASCADE MOBILE COMMUNICATIONS LIMITED
PARTNERSHIP
By: Arch Michigan, Inc., its General
Partner
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
TELECOMM/KRT PARTNERSHIP
By: Arch Michigan, Inc., a General
Partner
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
By: Kelley's Radio Telephone, Inc.,
a General Partner
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
ARCH COMMUNICATIONS, INC.
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE A AND C FACILITIES)
CONSENTED TO BY:
ARCH COMMUNICATIONS GROUP, INC.
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
<PAGE>
Attachment I
AMENDMENT NO. 2
TO THE
PARENT GUARANTY
AMENDMENT NO. 2 (this "Amendment"), dated as of December 8, 1998, to and
under the Amended and Restated Parent Guaranty and Pledge Agreement (the "Parent
Guaranty"), dated as of June 29, 1998, between Arch Communications Group, Inc.
(the "Parent") and The Bank of New York, as Collateral Agent, as amended by
Amendment No. 1, dated as of September 9, 1998.
RECITALS
A. Reference is made to (i) the Second Amended and Restated Credit
Agreement (Tranche A and Tranche C Facilities) (the "Tranche A and Tranche C
Credit Agreement"), dated as of June 29, 1998, by and among Arch Paging, Inc.
(the "Borrower"), the Lenders party thereto, The Bank of New York, Royal Bank of
Canada, Toronto Dominion (Texas), Inc. and Barclays PLC, as Managing Agents,
Royal Bank of Canada, as Documentation Agent, Toronto Dominion (Texas), Inc., as
Syndication Agent, and The Bank of New York, as Administrative Agent, as
amended, and (ii) the Second Amended and Restated Credit Agreement (Tranche B
Facility) (the "Tranche B Credit Agreement", and together with the Tranche A and
Tranche C Credit Agreement, the "Credit Agreements"), dated as of June 29, 1998,
by and among the Borrower, the Lenders party thereto, The Bank of New York,
Royal Bank of Canada, Toronto Dominion (Texas), Inc. and Barclays PLC, as
Managing Agents, Royal Bank of Canada, as Documentation Agent, Toronto Dominion
(Texas), Inc., as Syndication Agent, and The Bank of New York, as Administrative
Agent, as amended. Capitalized terms used herein which are not defined herein
shall have the respective meanings ascribed thereto in the Credit Agreements as
amended.
B. In connection with the Bankruptcy Proceeding, the Borrower desires to
amend the terms and provisions of certain of the MobileMedia Transaction
Documents.
C. The Borrower desires to merge certain of its Subsidiaries into a single
Subsidiary within 45 days following the date hereof.
D. The Borrower desires to make an equity contribution in the amount of
$250,000 to Arch Latin America, an entity in which the Borrower has a minority
interest.
E. In order to permit and facilitate the foregoing transactions, the Parent
and the Borrower have requested that the Required Lenders and the Collateral
Agent agree to certain amendments to the Parent Guaranty as set forth below, and
the Required Lenders and the Collateral Agent are willing to do so subject to
the terms and conditions set forth below.
<PAGE>
Accordingly, in consideration of the Recitals and the covenants, conditions
and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. Section 8(b)(vi) of the Parent Guaranty is amended by inserting the
parenthetical phrase "(other than with respect to the API Subsidiary Merger)"
immediately after (i) the reference to Section 8.3(i) appearing on the second
line therein, and (ii) the reference to Section 8.8(b) appearing on the fifth
line therein.
2. Paragraph 1 of this Amendment shall not be effective until the prior or
simultaneous fulfillment of the following:
(a) The Administrative Agent shall have received this Amendment, duly
executed by a duly authorized officer or officers of the Parent, the
Borrower and the Collateral Agent.
(b) The Administrative Agent shall have received Amendment No. 2,
dated the date hereof, to the Tranche B Credit Agreement, duly executed by
a duly authorized officer or officers of the Borrower, the Parent, Arch,
the Subsidiary Guarantors, the Administrative Agent and the Required
Lenders (each under and as defined in the Tranche B Credit Agreement).
(c) The Administrative Agent shall have received Amendment No. 2,
dated the date hereof, to the Tranche A and Tranche C Credit Agreement,
duly executed by a duly authorized officer or officers of the Borrower, the
Parent, Arch, the Subsidiary Guarantors, the Administrative Agent and the
Required Lenders (each under and as defined in the Tranche A and Tranche C
Credit Agreement).
(d) The Administrative Agent shall have received Amendment No. 2,
dated the date hereof, to the Arch Guaranty, duly executed by a duly
authorized officer or officers of Arch, the Borrower and the Collateral
Agent, in form and substance satisfactory to the Administrative Agent.
(e) All fees and expenses payable on the effectiveness of this
Amendment, including the reasonable fees and expenses of Special Counsel
incurred to date, shall have been paid.
(f) The Administrative Agent shall have received such other documents
as it shall reasonably request.
3. The Parent hereby (i) reaffirms and admits the validity and
enforceability of the Parent Guaranty (as amended by this Amendment) and the
other Loan Documents to which it is a party and all of its obligations
thereunder, (ii) represents and warrants that there exists no Default or Event
of Default, and (iii) represents and warrants that the representations and
warranties contained in the Loan Documents, including the Parent Guaranty as
<PAGE>
amended by this Amendment (other than the representations and warranties made as
of a specific date) are true and correct in all material respects on and as of
the date hereof, except to the extent that such representations and warranties
are no longer true or correct as a result of events, acts, transactions or
occurrences after the Restatement Effective Date which are permitted under the
Credit Agreements.
4. This Amendment may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute one agreement. It
shall not be necessary in making proof of this Amendment to produce or account
for more than one counterpart signed by the party to be charged.
5. This Amendment is being delivered in and is intended to be performed in
the State of New York and shall be construed and enforceable in accordance with,
and be governed by, the internal laws of the State of New York without regard to
principles of conflict of laws.
6. Except as amended hereby, the Parent Guaranty shall in all other
respects remain in full force and effect.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
the Parent Guaranty to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
ARCH COMMUNICATIONS GROUP, INC.
By:
Name:
Title:
THE BANK OF NEW YORK, as Collateral
Agent
By:
Name:
Title:
ACCEPTED AND AGREED TO:
ARCH PAGING, INC.
By:
Name:
Title:
<PAGE>
Attachment II
AMENDMENT NO. 2
TO THE
ARCH GUARANTY
AMENDMENT NO. 2 (this "Amendment"), dated as of December 8, 1998, to and
under the Arch Guaranty (the "Arch Guaranty"), dated as of June 29, 1998,
between Arch Communications, Inc. ("Arch") and The Bank of New York, as
Collateral Agent, as amended by Amendment No. 1, dated as of September 9, 1998.
RECITALS
A. Reference is made to (i) the Second Amended and Restated Credit
Agreement (Tranche A and Tranche C Facilities) (the "Tranche A and Tranche C
Credit Agreement"), dated as of June 29, 1998, by and among Arch Paging, Inc.
(the "Borrower"), the Lenders party thereto, The Bank of New York, Royal Bank of
Canada, Toronto Dominion (Texas), Inc. and Barclays PLC, as Managing Agents,
Royal Bank of Canada, as Documentation Agent, Toronto Dominion (Texas), Inc., as
Syndication Agent, and The Bank of New York, as Administrative Agent, as
amended, and (ii) the Second Amended and Restated Credit Agreement (Tranche B
Facility) (the "Tranche B Credit Agreement", and together with the Tranche A and
Tranche C Credit Agreement, the "Credit Agreements"), dated as of June 29, 1998,
by and among the Borrower, the Lenders party thereto, The Bank of New York,
Royal Bank of Canada, Toronto Dominion (Texas), Inc. and Barclays PLC, as
Managing Agents, Royal Bank of Canada, as Documentation Agent, Toronto Dominion
(Texas), Inc., as Syndication Agent, and The Bank of New York, as Administrative
Agent, as amended. Capitalized terms used herein which are not defined herein
shall have the respective meanings ascribed thereto in the Credit Agreements as
amended.
B. In connection with the Bankruptcy Proceeding, the Borrower desires to
amend the terms and provisions of certain of the MobileMedia Transaction
Documents.
C. The Borrower desires to merge certain of its Subsidiaries into a single
Subsidiary within 45 days following the date hereof.
D. The Borrower desires to make an equity contribution in the amount of
$250,000 to Arch Latin America, an entity in which the Borrower has a minority
interest.
E. In order to permit and facilitate the foregoing transactions, the Parent
and the Borrower have requested that the Required Lenders and the Collateral
Agent agree to certain amendments to the Arch Guaranty as set forth below, and
the Required Lenders and the Collateral Agent are willing to do so subject to
the terms and conditions set forth below.
<PAGE>
Accordingly, in consideration of the Recitals and the covenants, conditions
and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. Section 8(b)(vi) of the Parent Guaranty is amended by inserting the
parenthetical phrase "(other than with respect to the API Subsidiary Merger)"
immediately after (i) the reference to Section 8.3(i) appearing on the second
line therein, and (ii) the reference to Section 8.8(b) appearing on the fifth
line therein.
2. Paragraph 1 of this Amendment shall not be effective until the prior or
simultaneous fulfillment of the following conditions:
(a) The Administrative Agent shall have received this Amendment, duly
executed by a duly authorized officer or officers of Arch, the Borrower and
the Collateral Agent.
(b) The Administrative Agent shall have received Amendment No. 2,
dated the date hereof, to the Tranche B Credit Agreement, duly executed by
a duly authorized officer or officers of the Borrower, the Parent, Arch,
the Subsidiary Guarantors, the Administrative Agent and the Required
Lenders (each under and as defined in the Tranche B Credit Agreement).
(c) The Administrative Agent shall have received Amendment No. 2,
dated the date hereof, to the Tranche A and Tranche C Credit Agreement,
duly executed by a duly authorized officer or officers of the Borrower, the
Parent, Arch, the Subsidiary Guarantors, the Administrative Agent and the
Required Lenders (each under and as defined in the Tranche A and Tranche C
Credit Agreement).
(d) The Administrative Agent shall have received Amendment No. 2,
dated the date hereof, to the Parent Guaranty, duly executed by a duly
authorized officer or officers of the Parent, the Borrower and the
Collateral Agent, in form and substance satisfactory to the Administrative
Agent.
(e) All fees and expenses payable on the effectiveness of this
Amendment, including the reasonable fees and expenses of Special Counsel
incurred to date, shall have been paid.
(f) The Administrative Agent shall have received such other documents
as it shall reasonably request.
3. Arch hereby (i) reaffirms and admits the validity and enforceability of
the Arch Guaranty (as amended by this Amendment) and the other Loan Documents to
which it is a party and all of its obligations thereunder, (ii) represents and
warrants that there exists no Default or Event of Default, and (iii) represents
and warrants that the representations and warranties contained in the Loan
<PAGE>
Documents, including the Arch Guaranty as amended by this Amendment (other than
the representations and warranties made as of a specific date) are true and
correct in all material respects on and as of the date hereof, except to the
extent that such representations and warranties are no longer true or correct as
a result of events, acts, transactions or occurrences after the Restatement
Effective Date which are permitted under the Credit Agreements.
4. This Amendment may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute one agreement. It
shall not be necessary in making proof of this Amendment to produce or account
for more than one counterpart signed by the party to be charged.
5. This Amendment is being delivered in and is intended to be performed in
the State of New York and shall be construed and enforceable in accordance with,
and be governed by, the internal laws of the State of New York without regard to
principles of conflict of laws.
6. Except as amended hereby, the Arch Guaranty shall in all other respects
remain in full force and effect.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
the Arch Guaranty to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
ARCH COMMUNICATIONS, INC.
By:
Name:
Title:
THE BANK OF NEW YORK, as Collateral
Agent
By:
Name:
Title:
ACCEPTED AND AGREED TO:
ARCH PAGING, INC.
By:
Name:
Title:
EXHIBIT 10.4
AMENDMENT NO. 1
TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
AMENDMENT NO. 1 (this "Amendment"), dated as of September 14, 1998, to and
under the Second Amended and Restated Credit Agreement (Tranche B Facility) (the
"Credit Agreement"), dated as of June 29, 1998, by and among Arch Paging, Inc.
(the "Borrower"), the Lenders party thereto, The Bank of New York, Royal Bank of
Canada and Toronto Dominion (Texas), Inc., as Managing Agents, Royal Bank of
Canada, as Documentation Agent, Toronto Dominion (Texas), Inc., as Syndication
Agent, and The Bank of New York, as Administrative Agent.
RECITALS
A. Capitalized terms used herein which are not defined herein shall have
the respective meanings ascribed thereto in the Credit Agreement as amended
hereby.
B. MobileMedia Corp. and certain of its Subsidiaries are debtors in
possession in the Bankruptcy Proceeding.
C. Pursuant to the Amended Plan, on the Merger Effective Date, immediately
after the discharge of all claims against, and the termination of all interests
in, MobileMedia Corp. and its Subsidiaries to the extent and in the manner set
forth in the Confirmation Order, and immediately prior to the Merger Effective
Time: (i) MobileMedia Corp. shall make the MobileMedia Corp. Contribution and
shall thereafter immediately dissolve, (ii) Pre-Merger MobileMedia shall merge
with and into Farm Team, with Farm Team as the survivor and the MobileMedia Name
Change shall occur, (iii) Pre-Merger MMCA shall merge with and into Delaware
Subsidiary with Delaware Subsidiary as the survivor and the MMCA Name Change
shall occur, (iv) all Pre-Merger MMCA Wholly-Owned Subsidiaries shall merge with
and into MMCA (formerly, Delaware Subsidiary) with MMCA as the survivor, (v) all
Pre-Merger MobileMedia Wholly-Owned Subsidiaries shall be merged with and into
MMCA with MMCA as the survivor, (vi) the merger of FWS Radio and MobileComm West
with and into MMCA with MMCA as the survivor, (vii) MobileMedia shall make the
MobileMedia Contribution, and (viii) MMCA shall organize MobileMedia License
Subsidiary and shall make the MMCA Contribution.
D. In order to finance a portion of the purchase price of the MobileMedia
Merger, (i) the net proceeds of the MobileMedia Tower Sale will be applied to
the repayment of indebtedness of MobileMedia Corp. and its Subsidiaries under
the MobileMedia 1995 Loan Documents, (ii) Arch will issue the New Arch Notes in
an aggregate principal amount not less than $120,000,000 and will contribute the
net proceeds thereof to the Borrower as additional equity, (iii) the Borrower
will lend such net proceeds to Farm Team to be used by Farm Team to repay a
<PAGE>
portion of the Existing MobileMedia Debt and (iv) the Parent will conduct the
Rights Offering and shall use the net proceeds thereof to repay a portion of the
Existing MobileMedia Debt and other claims as provided in the Amended Plan and
the Confirmation Order.
E. In order to permit and facilitate the foregoing transactions, the Parent
and the Borrower have requested that the Lenders agree to certain amendments to
the Credit Agreement as set forth below, and the Lenders are willing to do so
subject to the terms and conditions set forth below.
Accordingly, in consideration of the Recitals and the covenants, conditions
and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. The Lenders hereby agree that the Aggregate Tranche B Commitments may be
increased (the "Proposed Aggregate Tranche B Commitment Increase") on the Merger
Effective Date substantially contemporaneously with the consummation of the
MobileMedia Merger by an amount not in excess of $25,000,000, provided that (i)
the Borrower has obtained commitments for such increase from one or more
Eligible Institutions acceptable to the Administrative Agent and the Letter of
Credit Issuer or from one or more Lenders, (ii) each such Lender or Eligible
Institution shall have notified the Borrower and the Administrative Agent in
writing of its assumption of such commitment and the amount thereof, (iii) in
the case of an Eligible Institution, (A) such Eligible Institution shall have
agreed in a writing satisfactory to the Borrower and the Administrative Agent to
assume all the rights and obligations of a "Lender" under the Agreement and the
other Loan Documents, and (B) the Borrower shall have executed and delivered a
Note to such Eligible Institution, and (iv) the sum of the Proposed Aggregate
Tranche A Commitment Increase (as defined in the Tranche A and Tranche C Credit
Agreement Amendment) plus the Proposed Aggregate Tranche B Commitment Increase
plus the Proposed Additional Tranche C Loans (as defined in the Tranche A and
Tranche C Credit Agreement Amendment) shall not exceed $200,000,000 (the
"Proposed Facility Increase Maximum Amount"). If the MobileMedia Merger has not
been consummated prior to the time required by Section 8.3 of the Credit
Agreement, the Aggregate Tranche B Commitments shall not be increased.
2. The following definitions contained in Section 1.1 of Credit Agreement
are amended in their entirety to read as follows:
"Applicable Margin":
(a) For the period from the Second Restatement Date until
the Merger Effective Date or, if the Merger Effective Date does not
occur, for the period on and after the Second Restatement Date:
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<PAGE>
(i) As to the Tranche B Loans, at all times during the
applicable periods set forth below: (1) with respect to the unpaid
principal amount thereof consisting of ABR Advances, the applicable
percentage set forth in the following table under the heading "ABR"
and (2) with respect to the unpaid principal amount thereof consisting
of Eurodollar Advances, the applicable percentage set forth in the
following table under the heading "Eurodollar Rate":
---------------------------------------------------------------
PRICING LEVERAGE RATIO
---------------------------------------------------------------
Greater Than
or Equal To Less Than ABR Eurodollar Rate
--------------- ------------ ---------- -----------------
5.00:1.00 1.750% 3.000%
--------------- ------------ ---------- -----------------
4.50:1.00 5.00:1.00 1.500% 2.750%
--------------- ------------ ---------- -----------------
4.00:1.00 4.50:1.00 1.125% 2.375%
--------------- ------------ ---------- -----------------
3.00:1.00 4.00:1.00 0.750% 2.000%
--------------- ------------ ---------- -----------------
3.00:1.00 0.375% 1.625%
--------------- ------------ ---------- -----------------
(ii) Changes in the Applicable Margin resulting from a
change in the Pricing Leverage Ratio, as set forth in a Compliance
Certificate delivered pursuant to Section 7.1(c) evidencing such a
change, shall become effective upon the second Business Day following
the delivery by the Borrower to the Administrative Agent of a new
Compliance Certificate pursuant to Section 7.1(c) evidencing a change
in the Pricing Leverage Ratio. If the Borrower shall fail to deliver a
Compliance Certificate within 60 days after the end of each of the
first three fiscal quarters (or 90 days after the end of the last
fiscal quarter) as required by Section 7.1(c), the Pricing Leverage
Ratio, solely for purposes of calculating the Applicable Margin, shall
be deemed to be greater than 5.00:1.00 from and including the date on
which such Compliance Certificate was required to be delivered to the
date of delivery to the Administrative Agent of such Compliance
Certificate.
(b) On and after the Merger Effective Date:
(i) For the period from the Merger Effective Date
through and including the first anniversary thereof, at all times
during the applicable periods set forth below: (1) with respect to the
unpaid principal amount thereof consisting of ABR Advances, the
applicable percentage set forth in the following table under the
heading "ABR" and (2) with respect to the unpaid principal amount
thereof consisting of Eurodollar Advances, the applicable percentage
set forth in the following table under the heading "Eurodollar Rate":
- 3 -
<PAGE>
---------------------------------------------------------------
PRICING LEVERAGE RATIO
---------------------------------------------------------------
Greater Than
or Equal To Less Than ABR Eurodollar Rate
--------------- ------------ ---------- -----------------
4.50:1.00 1.875% 3.125%
--------------- ------------ ---------- -----------------
4.00:1.00 4.50:1.00 1.500% 2.750%
--------------- ------------ ---------- -----------------
3.00:1.00 4.00:1.00 1.125% 2.375%
--------------- ------------ ---------- -----------------
3.00:1.00 0.750% 2.000%
--------------- ------------ ---------- -----------------
(ii) After the first anniversary of the Merger
Effective Date, at all times during the applicable periods set forth
below: (1) with respect to the unpaid principal amount thereof
consisting of ABR Advances, the applicable percentage set forth in the
following table under the heading "ABR" and (2) with respect to the
unpaid principal amount thereof consisting of Eurodollar Advances, the
applicable percentage set forth in the following table under the
heading "Eurodollar Rate":
---------------------------------------------------------------
PRICING LEVERAGE RATIO
---------------------------------------------------------------
Greater Than
or Equal Less Than ABR Eurodollar Rate
--------------- ------------ ---------- -----------------
4.50:1.00 1.500% 2.750%
--------------- ------------ ---------- -----------------
4.00:1.00 4.50:1.00 1.125% 2.375%
--------------- ------------ ---------- -----------------
3.00:1.00 4.00:1.00 0.750% 2.000%
--------------- ------------ ---------- -----------------
3.00:1.00 0.375% 1.625%
--------------- ------------ ---------- -----------------
(iii) Changes in the Applicable Margin resulting from a
change in the Pricing Leverage Ratio, as set forth in a Compliance
Certificate delivered pursuant to Section 7.1(c) evidencing such a
change, shall become effective upon the second Business Day following
the delivery by the Borrower to the Administrative Agent of a new
Compliance Certificate pursuant to Section 7.1(c) evidencing a change
in the Pricing Leverage Ratio. If the Borrower shall fail to deliver a
Compliance Certificate within 60 days after the end of each of the
first three fiscal quarters (or 90 days after the end of the last
fiscal quarter) as required by Section 7.1(c), the Pricing Leverage
Ratio, solely for purposes of calculating the Applicable Margin, shall
be deemed to be greater than 4.50:1.00 from and including the date on
which such Compliance Certificate was required to be delivered to the
date of delivery to the Administrative Agent of such Compliance
Certificate.
"Change of Control": any change of control, fundamental change or
any similar circumstance which, under any of the Existing Arch
Indentures, the Arch 12 3/4% Indenture, the Parent Discount Notes
Indenture, the Subordinated Indenture, the New Arch Indenture (if
existing), the Replacement Indenture (if existing) or the
documentation evidencing or governing any other Indebtedness of the
Parent, Arch or the Borrower of $15,000,000 or more, results in an
- 4 -
<PAGE>
obligation of the Parent, Arch or the Borrower to prepay, purchase,
offer to purchase, redeem or defease such Indebtedness.
"Net Sales Proceeds": an amount equal to the greater of (i) the
aggregate gross sales proceeds received from each sale or other
disposition, direct or indirect, of Property (other than inventory or
Property sold or otherwise disposed of in the ordinary course of
business) less (x) sales and other commissions and legal and other
expenses incurred in connection with such sale, including reasonable
expenses incurred in connection with the preparation of such Property
for sale, (y) taxes reasonably estimated to be payable with respect to
such sale by the Parent and its Subsidiaries for the taxable year in
which such sale occurred (taking into consideration the Parent's
overall Consolidated tax position for such year) and (z) the amount of
Indebtedness secured by such Property which is required to be repaid
upon such sale or (ii) 100% of the Net Cash Proceeds (or similar
amount) as defined in any of the Parent Discount Notes Indenture, the
Existing Arch Indentures, the Arch 12 3/4% Indenture, the New Arch
Indenture (if existing) or the Replacement Indenture (if existing), in
each case in effect on the date of determination of Net Sales
Proceeds.
"Required Obligations": on any date, interest due and payable on
such date on the Existing Arch Senior Notes, the Arch 12 3/4% Senior
Notes, the New Arch Notes (if existing) and any Replacement Notes (if
existing).
"Tranche B Lender": each Lender having a Tranche B Commitment or
a Tranche B Loan outstanding.
"Transaction Documents": (i) prior to the Amendment Effective
Date, collectively the Loan Documents, the Arch 12 3/4% Indenture, the
Equity Investment Documents and all documents executed and delivered
in connection with the Arch Transactions, the ACE Transactions and the
Equity Investment, and (ii) on and after the Amendment Effective Date,
collectively the Loan Documents, the New Arch Indenture (if existing)
and the MobileMedia Transaction Documents.
3. Section 1.1 of the Credit Agreement is amended by adding the following
definitions in their appropriate alphabetical order:
"Additional Tranche C Lender": as defined in the Tranche A and
Tranche C Credit Agreement.
"Additional Tranche C Loan": as defined in the Tranche A and
Tranche C Credit Agreements
"Amended Plan": the Debtors' Second Amended Joint Plan of
Reorganization, dated September 3, 1998, filed by MobileMedia Corp.
and its Subsidiaries in the Bankruptcy Proceeding.
- 5 -
<PAGE>
"Amendment Effective Date": as defined in Amendment No. 1.
"Amendment No. 1": Amendment No. 1, dated as of September 14,
1998, to this Agreement.
"Bankruptcy Court": the United States Bankruptcy Court for the
District of Delaware.
"Bankruptcy Proceeding": the proceeding entitled In re:
MobileMedia Communications, Inc. et al. pending in the Bankruptcy
Court.
"Confirmation Order": the order of the Bankruptcy Court
confirming the Amended Plan.
"Delaware Subsidiary": Delaware Subsidiary Co., a Delaware
corporation and a wholly-owned Subsidiary of Pre-Merger MobileMedia,
to be renamed MobileMedia Corporation of America in the MMCA Name
Change.
"Dial Page Indenture": the Indenture, dated as of February 1,
1993, between Dial Page, Inc., as Issuer, and Norwest Bank Minnesota,
N.A. (as successor to First Union Bank of South Carolina), as Trustee,
as amended.
"Dial Page Notes": the 12 1/4% Senior Notes due 2000, issued by
Dial Page, Inc. pursuant to the Dial Page Indenture.
"Existing MobileMedia Debt": collectively, the indebtedness of
MobileMedia Corp. and its Subsidiaries under and in respect of the
Dial Page Indenture, the Dial Page Notes, the MobileMedia 1995 Loan
Documents, the MobileMedia DIP Loan Documents, the MobileMedia 9 3/8%
Note Indenture, the MobileMedia 9 3/8% Notes, the MobileMedia 10 1/2%
Note Indenture and the MobileMedia 10 1/2% Notes, including all
outstanding principal, unpaid and accrued interest, unpaid and accrued
fees and other unpaid sums under each thereof, in each case to the
extent allowed in the Bankruptcy Proceeding.
"Farm Team": Farm Team Corp., a Delaware corporation and a direct
wholly-owned Subsidiary of the Parent, to be renamed MobileMedia
Communications, Inc. in the MobileMedia Name Change and to be
contributed to the Borrower in the MobileMedia Dropdown.
"FCC Proceeding": the hearing in WT Docket No. 97-115, entitled
In the Matter of MobileMedia Corporation, et al. relating to
Pre-Merger MobileMedia's and its Subsidiaries' qualifications to
remain FCC licensees.
- 6 -
<PAGE>
"Final Order": as to any court, administrative agency or other
tribunal, an order or judgment of such tribunal as entered on its
docket, which order or judgment shall not have been reversed, stayed,
enjoined, annulled or suspended and the time for filing an appeal,
petition for certiorari or other request for administrative or
judicial relief or, in the case of an order of the FCC, for
instituting administrative review of such order sua sponte, has
expired and as to which no appeal, petition for certiorari or other
request for administrative or judicial relief or, in the case of an
order of the FCC, for instituting administrative review of such order
sua sponte, is pending or, if an appeal, petition for certiorari or
other request for administrative or judicial relief or, in the case of
an order of the FCC, for instituting administrative review of such
order sua sponte, has been timely filed or taken, the order or
judgment of such court, administrative agency or other tribunal has
been affirmed (or such appeal, petition or other request for
administrative or judicial relief has been dismissed as moot) by the
highest court (or other tribunal having appellate jurisdiction over
the order or judgment) to which the order was appealed or the petition
for certiorari has been denied or, in the case of an order of the FCC
which the FCC decided to review sua sponte, the FCC has either
withdrawn or dismissed such review), and the time to take any further
appeal or to seek further certiorari or judicial or administrative
review has expired.
"FWS Radio": FWS Radio, Inc., a Texas corporation, and prior to
the consummation of the MobileMedia Subsidiary Transactions, an
indirect Subsidiary of Pre-Merger MobileMedia.
"HSR Act": the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Locate Entities": Proximity Communications Manager, Inc.,
Proximity Communications, Inc., Locate-1, Inc., Proximity
Communications, L.L.C. and Personal Communication Network Services of
New York, Inc.
"Merger Agreement": the Agreement and Plan of Merger, dated as of
August 18, 1998, by and among the Parent, Farm Team, MobileMedia Corp.
and Pre-Merger MobileMedia, as amended by the First Amendment, dated
as of September 3, 1998.
"Merger Effective Date": provided that the conditions precedent
to the consummation of the MobileMedia Merger as set forth in Section
8.3(iv) shall have been satisfied (prior to or simultaneously) or
waived in accordance with the provisions of Section 11.1, the date
upon which the MobileMedia Merger becomes effective.
"Merger Effective Time": the time on the Merger Effective Date at
which the MobileMedia Merger becomes effective.
- 7 -
<PAGE>
"MMCA": prior to the MMCA Name Change, Delaware Subsidiary Co.,
and after the MMCA Name Change, MobileMedia Corporation of America.
"MMCA Contribution": the transfer by MMCA of all licenses and
other authorizations previously issued to Pre-Merger MobileMedia or
any of its Subsidiaries to operate their paging networks to
MobileMedia License Subsidiary.
"MMCA Name Change": the change of the name of Delaware Subsidiary
to "MobileMedia Corporation of America" after the merger of Pre-Merger
MMCA with and into Delaware Subsidiary.
"MobileComm West": MobileComm of the West, Inc., a California
corporation, and prior to the consummation of the MobileMedia
Transactions, an indirect Subsidiary of Pre-Merger MobileMedia.
"MobileMedia": prior to the MobileMedia Name Change, Farm Team
Corp. and on and after the MobileMedia Name Change, MobileMedia
Communications, Inc.
"MobileMedia Contribution": the transfer by MobileMedia of all of
its assets (other than its Stock in MMCA and the Locate Entities) to
MMCA.
"MobileMedia Corp.": MobileMedia Corporation, a Delaware
corporation, which will be dissolved immediately after the MobileMedia
Corp. Contribution.
"MobileMedia Corp. Contribution": the transfer by MobileMedia
Corp. of all of its assets to Pre-Merger MobileMedia.
"MobileMedia DIP Loan Documents": collectively, (i) the Credit
Agreement, dated as of January 30, 1997, among Pre-Merger MobileMedia,
the lenders party thereto and The Chase Manhattan Bank, as agent, and
(ii) the guaranties, security documents and other loan documents
executed and delivered in connection therewith.
"MobileMedia Dropdown": collectively, the contribution of all of
the issued and outstanding capital Stock of MobileMedia (i) by the
Parent to Arch and (ii) thereafter by Arch to the Borrower.
"MobileMedia Intercompany Note": the promissory note, to be made
by Farm Team to the Borrower.
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"MobileMedia License Subsidiary": a wholly-owned Subsidiary of
MMCA to be created prior to the Merger Effective Date.
"MobileMedia Merger": the merger of Pre-Merger MobileMedia with
and into Farm Team.
"MobileMedia 1995 Loan Documents": collectively, (i) the Credit
Agreement, dated as of December 4, 1995, among Pre-Merger MobileMedia,
the lenders party thereto and The Chase Manhattan Bank, as agent, and
(ii) the guaranties, security documents and other loan documents
executed and delivered in connection therewith.
"MobileMedia Merger Certificate": the Certificate of Ownership
and Merger, filed with the Secretary of State of the State of Delaware
to effect the MobileMedia Merger.
"MobileMedia Merger Documents": collectively, (i) the Merger
Agreement, (ii) Warrant Agreements, (iii) the Registration Rights
Agreements, (iv) the MobileMedia Subsidiary Transaction Documents, (v)
the Standby Purchase Commitment Letters, and (vi) all other documents
executed and delivered in connection with the MobileMedia Merger, the
MobileMedia Subsidiary Transactions and the Rights Offering.
"MobileMedia Name Change": the change of the name of Farm Team to
"MobileMedia Communications, Inc." after the MobileMedia Merger.
"MobileMedia Subsidiary Merger Certificates": collectively, the
Certificates of Ownership and Merger (or analogous documents) filed
with the Secretary of State of the applicable jurisdictions to effect
(i) the merger of Pre-Merger MMCA with and into MMCA with MMCA as the
survivor, (ii) the merger of each of the Pre-Merger MobileMedia
Wholly-Owned Subsidiaries, Pre-Merger MMCA Wholly-Owned Subsidiaries,
FWS Radio and MobileComm West, with and into MMCA with MMCA as the
survivor.
"MobileMedia Subsidiary Transactions": collectively, the
following transactions which are to take place after the MobileMedia
Merger and in the following order: (i) the merger of Pre-Merger MMCA
with and into MMCA with MMCA as the survivor, (ii) the MMCA Name
Change, (iii) the merger of all Pre-Merger MobileMedia Wholly-Owned
Subsidiaries with and into MMCA with MMCA as the survivor, (iv) the
MobileMedia Contribution, (v) the merger of FWS Radio and MobileComm
West with and into MMCA with MMCA as the survivor, (vi) the merger of
each of the Pre-Merger MobileMedia Wholly-Owned Subsidiaries with and
into MMCA with MCCA as the survivor, and (vii) the MMCA Contribution.
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"MobileMedia Subsidiary Transaction Documents": collectively, all
documents executed in connection with the MobileMedia Subsidiary
Transactions.
"MobileMedia Tower Sale": the sale by MobileMedia and its
Subsidiaries of certain transmission towers and related assets
pursuant to the Purchase Agreement, dated as of July 7, 1998, among
MobileMedia, its Subsidiaries party thereto and Pinnacle Towers, Inc.,
or such other agreement to sell such towers and related assets as may
be approved by the Bankruptcy Court.
"MobileMedia Transactions": collectively, the following
transactions which are to take place in the following order: (i) the
MobileMedia Corp. Contribution, (ii) the dissolution of MobileMedia
Corp., (iii) the MobileMedia Merger, (iv) the MobileMedia Name Change,
(v) the MobileMedia Subsidiary Transactions, and (vi) the MobileMedia
Dropdown.
"MobileMedia Transaction Documents": collectively, the
MobileMedia Merger Documents, the MobileMedia Subsidiary Transaction
Documents, and all other documents executed and delivered in
connection with the MobileMedia Transactions.
"MobileMedia 9 3/8% Note Indenture": the Indenture dated as of
November 13, 1995, between Pre-Merger MobileMedia, as Issuer, and
State Street Bank and Trust Company, as Trustee.
"MobileMedia 9 3/8% Notes": the Senior Subordinated Notes due
November 1, 2007, issued by Pre-Merger MobileMedia pursuant to the 9
3/8% Note Indenture.
"MobileMedia 10 1/2% Note Indenture": the Indenture dated as of
December 1, 1993, between Pre-Merger MobileMedia, as Issuer, and First
Trust USA (as successor to BankAmerica National Trust Company), as
Trustee, as amended.
"MobileMedia 10 1/2% Notes": the Senior Subordinated Deferred
Coupon Notes due December 1, 2003, issued by Pre-Merger MobileMedia
pursuant to the 10 1/2% Note Indenture.
"New Arch Notes": as defined in Section 8.3(iv)(C).
"New Arch Indenture": as defined in Section 8.3(iv)(C).
"Parent Warrants": warrants for the purchase of common Stock of
the Parent, certain of which such warrants will be subscribed for in
the Rights Offering.
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"Pre-Merger MMCA": MobileMedia Corporation of America, a
Mississippi corporation, as in existence prior to its merger with and
into Delaware Subsidiary.
"Pre-Merger MMCA Wholly-Owned Subsidiaries": collectively, each
of the following which, prior to the MobileMedia Transactions was a
direct wholly-owned Subsidiary of Pre-Merger MMCA: (i) MobileComm of
Florida, Inc., a Florida corporation, (ii) MobileComm of Tennessee,
Inc., a Tennessee corporation, (ii) MobileComm of Tennessee, Inc., a
Tennessee corporation, (iii) MobileComm of the Midsouth, Inc., a
Missouri corporation, (iv) MobileComm Nationwide Operations, Inc., a
Delaware corporation, (v) MobileComm of the Northeast, Inc., a
Delaware corporation, (vi) MobileComm of the Southeast, Inc., a
Delaware and Virginia corporation, (vii) MobileComm of the Southeast
Private Carrier Operations, Inc., a Georgia corporation, and (viii)
MobileComm of the Southwest, Inc., a Texas corporation.
"Pre-Merger MobileMedia": MobileMedia Communications, Inc., a
Delaware corporation, as in existence prior to the MobileMedia Merger.
"Pre-Merger MobileMedia Wholly-Owned Subsidiaries": collectively,
each of the following which, prior to the MobileMedia Transactions was
a direct wholly-owned Subsidiary of Pre-Merger MobileMedia: (i) Dial
Page Southeast, a Delaware corporation, (ii) MobileMedia
Communications, Inc. (CA), a California corporation, (iii) MobileMedia
DP Properties, Inc., a Delaware corporation, (iv) MobileMedia Paging,
Inc., a Delaware corporation, (v) MobileMedia PCS, Inc., a Delaware
corporation, and (vi) Radio Call Co. of Va., Inc., a Virginia
corporation.
"Registration Rights Agreements": collectively, the registration
rights agreements entered into between the Parent and any other Person
in accordance with the Amended Plan.
"Rights": certificated, transferable rights issued by the Parent
for the purchase of (i) shares of common Stock of the Parent and (ii)
the Parent Warrants, which Rights shall be issued to certain holders
of unsecured claims of MobileMedia Corp. and its Subsidiaries in
accordance with the Amended Plan and Merger Agreement.
"Rights Offering": the issuance of the Rights by the Parent
pursuant to the Amended Plan and the Merger Agreement.
"Standby Purchase Commitment Letters": collectively, the
commitment letters, each dated August 18, 1998, made by the Standby
Purchasers evidencing their commitments to purchase common Stock of
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the Parent and Parent Warrants in the event any Rights are not
exercised in the Rights Offering.
"Standby Purchasers": collectively, those unsecured creditors of
MobileMedia Corp. and its subsidiaries that have executed a Standby
Purchase Commitment Letter.
"Warrant Agreements": collectively, the warrant agreements
entered into between the Parent and any other Person in accordance
with the Amended Plan.
4. Section 3.6(c) of the Credit Agreement is amended by adding immediately
prior to the period appearing at the end thereof the following:
or if such Foreign Credit Party is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and intends to claim exemption from
U.S. Federal withholding tax under Section 871(h) or 881(c) of the
Code with respect to payments of "portfolio interest", a Form W-8 or
any subsequent versions thereof or successors thereto (and, if such
Foreign Credit Party delivers a Form W-8, a certificate representing
that such Foreign Credit Party is not a bank for purposes of Section
881(c) of the Code, is not a 10-percent shareholder (within the
meaning of Section 871(h)(3)(B) of the Code of the Borrower and is not
a controlled foreign corporation related to the Borrower (within the
meaning of Section 864(d)(4) of the Code)), properly completed and
duly executed by such Foreign Credit Party claiming complete exemption
from, or a reduced rate of, U.S. Federal withholding tax on payments
of interest by the Borrower under this Agreement and the other Loan
Documents
5. Section 4.7 of the Credit Agreement is amended by replacing the phrase
"the Subordinated Indenture" appearing twice in such section with the phrase
"the Subordinated Indenture, the New Arch Indenture (if existing), the
Replacement Indenture (if existing)".
6. Section 4.22 of the Credit Agreement is amended by replacing the phrase
"and any Replacement Indenture" appearing in such section with the phrase "the
New Arch Indenture (if existing) and any Replacement Indenture (if existing)".
7. Section 4.24 of the Credit Agreement is amended by replacing the phrase
"the Existing Arch Indentures" appearing in such section with the phrase "the
Existing Arch Indentures, the New Arch Indenture (if existing)".
8. Section 6 of the Credit Agreement is amended by adding a new Section 6.4
to read as follows:
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6.4 Proposed Aggregate Tranche B Commitment Increase.
As an additional condition precedent to the obligation of
Tranche B Lenders to make Tranche B Loans under the Proposed Aggregate
Tranche B Commitment Increase (as defined in Amendment No. 1), the
conditions precedent to the consummation of the MobileMedia Merger as
set forth in Section 8.3(iv) shall have been satisfied (prior to or
simultaneously) or waived in accordance with the provisions of Section
11.1.
9. Section 7.15 of the Credit Agreement is amended in its entirety to read
as follows:
7.15. Total Leverage Ratio.
(a) For the period from the Second Restatement Date until
the Merger Effective Date or, if the Merger Effective Date does not
occur, for the period on and after the Second Restatement Date:
(i) At all times prior to the Existing Arch Senior Note
Termination Date, maintain, or cause to be maintained, during the
periods set forth below, a Total Leverage Ratio of not greater than
the ratios set forth below:
Periods Ratio
------- -----
Second Restatement Date through
June 29, 1999 5.25:1.00
June 30, 1999 through
June 29, 2000 5.00:1.00
June 30, 2000 through
June 29, 2001 4.50:1.00
June 30, 2001 through
June 29, 2002 4.00:1.00
June 30, 2002 and
thereafter 3.50:1.00,
(ii) At all times on and after the Existing Arch Senior
Note Termination Date, maintain, or cause to be maintained, a Total
Leverage Ratio of not greater than 5.00:1.00.
(b) On and after the Merger Effective Date:
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(i) At all times prior to the Existing Arch Senior Note
Termination Date, maintain, or cause to be maintained, during the
periods set forth below, a Total Leverage Ratio of not greater than
the ratios set forth below:
Periods Ratio
------- -----
Second Restatement Date through
June 29, 1999 5.00:1.00
June 30, 1999 through
December 30, 1999 4.75:1.00
December 31, 1999 through
June 29, 2000 4.50:1.00
June 30, 2000 through
June 29, 2001 4.25:1.00
June 30, 2001 through
June 29, 2002 4.00:1.00
June 30, 2002 and
thereafter 3.50:1.00,
(ii) At all times on and after the Existing Arch Senior
Note Termination Date, maintain, or cause to be maintained, a Total
Leverage Ratio of not greater than 5.00:1.00.
10. Section 8.1(viii) of the Credit Agreement is hereby amended to read as
follows:
(viii) Indebtedness of Arch under (A) the Existing Arch Senior Notes,
(B) the Arch 12 3/4% Senior Notes, (C) the New Arch Notes (if
existing), provided that (1) the proceeds thereof shall be used in
connection with the consummation of the MobileMedia Merger or (2) if
the Merger Agreement is terminated, expires or is no longer in effect,
the proceeds thereof shall be used to repay Tranche C Loans or
permanently reduce the Aggregate Tranche A Commitments or the
Aggregate Tranche B Commitments, and (D) the Replacement Notes (if
existing), provided that the principal amount of any such Replacement
Notes shall not exceed the principal amount of the Existing Arch
Senior Notes, the Arch 12 3/4% Senior Notes or the New Arch Notes
repaid with the proceeds thereof, and
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11. Section 8.3 of the Credit Agreement is amended in its entirety to read
as follows:
8.3. Merger.
Consolidate with, be acquired by, or merge into or with any
Person, or sell, lease or otherwise dispose of all or substantially
all of its Property or any of its Stock or otherwise alter or modify
its corporate name, structure, status or existence, or permit any of
its Subsidiaries so to do, except:
(i) prior to the Existing Arch Senior Note Termination Date,
Arch and any of its Subsidiaries (other than Benbow Investments until
such time as Benbow Investments ceases to be an Unrestricted
Subsidiary under and as defined in the Existing Arch Senior
Indentures, has become a Subsidiary Guarantor and has granted a
security interest to the Collateral Agent in its assets) may merge or
consolidate with, or transfer all or substantially all of its assets
to, Arch or any such Subsidiary, provided that in any merger involving
the Borrower, the Borrower shall be the survivor;
(ii) on and after the Existing Arch Senior Note Termination
Date, the Borrower and any of its Subsidiaries may merge or
consolidate with, or transfer all or substantially all of its assets
to, the Borrower or any such Subsidiary, provided that (A) the
Administrative Agent shall have received ten days' prior written
notice thereof, (B) immediately before and after giving effect thereto
no Default or Event of Default shall exist and (C) in any merger
involving the Borrower, the Borrower shall be the survivor;
(iii) at all times, (A) sales of Property to the extent
permitted under Section 8.8 and (B) mergers involving Subsidiaries of
the Borrower as part of an Acquisition permitted by Section 8.6,
provided that no Stock is issued in connection therewith except to the
extent permitted by Section 8.13; and
(iv) Farm Team may consummate the MobileMedia Merger subject
to the prior or simultaneous fulfillment of the following conditions
precedent:
(A) Evidence of Action by MobileMedia Corp. and its
Subsidiaries. The Administrative Agent shall have received a
certificate, dated as of the Merger Effective Date, of the Secretary
or Assistant Secretary of each of MobileMedia Corp. and each of its
Subsidiaries (including Delaware Subsidiary): (1) attaching a true and
complete copy of the resolutions of its Board of Directors and of all
documents evidencing other necessary corporate action (in form and
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substance satisfactory to the Administrative Agent) taken by it to
authorize the MobileMedia Transaction Documents and the Loan Documents
to which it is a party and the consummation of the transactions
contemplated thereby, (2) attaching a true and complete copy of its
certificate of incorporation and by-laws, (3) setting forth the
incumbency of its officer or officers who may sign the Loan Documents,
including therein a signature specimen of such officer or officers and
(4) attaching a certificate of good standing of the Secretary of State
of the jurisdiction of its incorporation and of each other state in
which it is qualified to do business, together with such other
documents as the Administrative Agent shall require.
(B) Evidence of Action by the Parent, Arch, the
Borrower and Farm Team. The Administrative Agent shall have received a
certificate, dated as of the Merger Effective Date, of the Secretary
or Assistant Secretary of each of the Parent, Arch, the Borrower and
Farm Team: (1) attaching a true and complete copy of the resolutions
of its Board of Directors and of all documents evidencing other
necessary corporate action (in form and substance satisfactory to the
Administrative Agent) taken by it to authorize the MobileMedia
Transactions Documents to which it is a party, and, in the case of
Arch, the New Arch Indenture, and the consummation of the MobileMedia
Transactions and all other transactions contemplated thereby, (2) in
the case of Farm Team, attaching a true and complete copy of its
certificate of incorporation and by-laws, and, in the case of the
Parent, Arch and the Borrower, as to its certificate of incorporation
and by-laws having not been amended, modified or changed in any manner
since the Second Restatement Date, or, if so, setting forth the same,
(3) setting forth the incumbency of its officer or officers who may
sign such MobileMedia Transaction Documents and Loan Documents,
including therein a signature specimen of such officer or officers and
(4) attaching a certificate of good standing of the Secretary of State
of the jurisdiction of its incorporation and of each other state in
which it is qualified to do business, together with such other
documents as the Administrative Agent shall require.
(C) New Arch Notes; Officer's Certificate. Arch shall
have (1) issued additional notes (the "New Arch Notes") on terms and
conditions satisfactory to the Managing Agents, (2) received proceeds
in an amount not less than $120,000,000 (less customary underwriting
discounts, commissions and related expenses) therefrom, and (3) the
Administrative Agent shall have received a certificate of a Financial
Officer of the Borrower, dated the Merger Effective Date, in all
respects satisfactory to the Administrative Agent as to the foregoing
matters and attaching a true, complete and correct copy of each of the
indenture or other documents executed and delivered in connection with
the issuance of the New Arch Notes (collectively, the "New Arch
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Indenture") and a copy of the Offering Memorandum or other disclosure
document, if any, in respect thereof, each of which shall be in form
and substance satisfactory to the Managing Agents.
(D) Cash Flows. (1) The combined Operating Cash Flow
and operating cash flow of MobileMedia Corp. and its Subsidiaries
(calculated in a manner consistent with the calculation of Operating
Cash Flow) on an annualized basis for the three month period ending on
the Merger Effective Date or, if the Merger Effective Date is not the
last day of a month, for the immediately preceding three month period
shall not be less than $225,000,000, (2) the aggregate number of
Pagers in Service of MobileMedia Corp. and its Subsidiaries and the
Borrower and its Subsidiaries on a combined basis as of the Merger
Effective Date shall not be less than $7,000,000, and (3) the
Administrative Agent shall have received a certificate of a Financial
Officer of the Borrower (including calculations in reasonable detail)
to the foregoing effect in form and substance satisfactory to the
Managing Agents.
(E) Corporate, Tax, Capital and Ownership Structure.
The corporate, tax, capital and ownership structure (including
articles of incorporation and by-laws), shareholders agreements and
management of the Parent, Arch, the Borrower and its Subsidiaries
before and after the consummation of the MobileMedia Transactions and
the issuance of the New Arch Notes shall be satisfactory to the
Managing Agents.
(F) Maximum Cash Price. The cash portion of the
purchase price to be paid by the Parent or any of its Subsidiaries in
connection with the MobileMedia Transactions (including transactions
fees and expenses) shall not exceed (1) if the Merger Effective Date
is on or before December 31, 1998, $575,000,000, and (2) if the Merger
Effective Date is after December 31, 1998, $585,000,000, in each case
of which at least $217,000,000 consists of the net proceeds of the
Rights Offering.
(G) Rights Offering. The Parent shall have completed
Rights Offering and shall have received not less than $217,000,000 in
net proceeds thereof, and the Administrative Agent shall have received
a certificate of a Financial Officer of the Borrower to the foregoing
effects in form and substance satisfactory to the Managing Agents.
(H) MobileMedia Tower Sale. The MobileMedia Tower Sale
shall have been consummated and the net proceeds thereof received by
MobileMedia Corp. and its Subsidiaries shall not be less than
$165,000,000 and the Administrative Agent shall have received a
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certificate of a Financial Officer of the Parent or Pre-Merger
MobileMedia to the foregoing effects in form and substance
satisfactory to the Managing Agents.
(I) Confirmation Order. The Administrative Agent shall
have received a court certified copy of the Confirmation Order, which
Confirmation Order shall be satisfactory to the Managing Agents and
shall have been in full force and effect for 11 days without any
modification or amendment or stay thereof, and there shall not be
pending any appeal or request for rehearing other than those which, in
the opinion of the Managing Agents in their sole discretion, would
not, individually or in the aggregate, have a material adverse effect
on (w) the business, property, financial condition, operations,
projections or prospects of the Parent and its Subsidiaries on a
consolidated basis, Arch and its Subsidiaries on a consolidated basis
or MobileMedia and its Subsidiaries on a consolidated basis; (x) the
legality, validity or enforceability of any of the Loan Documents, (y)
the ability of the Borrower to repay its obligations under the Loan
Documents or of any other Loan Party to perform its obligations under
the Loan Documents, or (z) the rights and remedies of the Lenders
under the Loan Documents.
(J) Absence of Litigation. There shall be no
injunction, writ, preliminary restraining order or other order of any
nature issued by any Governmental Body in any respect affecting the
transactions contemplated by the MobileMedia Transaction Documents and
the Loan Documents and no action or proceeding by or before any
Governmental Body shall have been commenced and be pending or, to the
knowledge of the Borrower or Arch, be threatened, seeking to prevent
or delay the transactions contemplated by the MobileMedia Transaction
Documents and the Loan Documents or challenging any other terms and
provisions hereof or thereof or seeking any damages in connection
therewith which would, in the opinion of the Managing Agents in their
sole discretion, individually or in the aggregate, have a material
adverse effect on (w) the business, property, financial condition,
operations, projections or prospects of the Parent and its
Subsidiaries on a consolidated basis, Arch and its Subsidiaries on a
consolidated basis or MobileMedia and its Subsidiaries on a
consolidated basis; (x) the legality, validity or enforceability of
any of the Loan Documents, (y) the ability of the Borrower to repay
its obligations under the Loan Documents or of any other Loan Party to
perform its obligations under the Loan Documents, or (z) the rights
and remedies of the Credit Parties under the Loan Documents.
(K) No Change of Control. The consummation of the
MobileMedia Transactions shall not constitute a Change of Control and
the Administrative Agent shall have received a certificate of a
Financial Officer of Arch to such effect.
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(L) No Default; Representations and Warranties. The
Administrative Agent shall have received a certificate of the
President, a Vice President or a Financial Officer of the Parent,
dated the Merger Effective Date, in all respects satisfactory to the
Administrative Agent certifying that as of the Merger Effective Date
(A) no Default exists and (B) the representations and warranties
contained in the Loan Documents are true and correct, except to the
extent such representations and warranties specifically relate to an
earlier date, in which case such representations and warranties shall
have been true and correct on and as of such earlier date.
(M) Absence of Adverse Changes.
(1) (a) Neither the Parent, Arch, the Borrower nor
any of their respective Subsidiaries shall have sustained since
December 31, 1997 (or (i) June 24, 1998, to the extent such matter is
disclosed in the Offering Memorandum dated June 24, 1998 with respect
to the Arch 12 3/4% Senior Notes or (ii) June 29, 1998, to the extent
such matter is disclosed in the current reports on Form 8-K of the
Parent and Arch filed on June 29, 1998) any loss or interference with
its respective business from fire, explosion, flood or other calamity,
whether or not covered by insurance or from any labor dispute or court
or governmental action order, or decree, (b) since such date there
shall not have been a material increase in short-term debt or
long-term debt of the Parent, Arch, the Borrower or any of their
respective Subsidiaries (other than debt contemplated by this
Agreement), and (c) since such date there shall not have been any
change, or any development involving a prospective change, that could
reasonably be expected in the opinion of the Managing Agents to result
in a material adverse effect on (i) the business, property, financial
condition, operations, projections or prospects of the Parent and its
Subsidiaries on a consolidated basis, Arch and its Subsidiaries on a
consolidated basis; (ii) the legality, validity or enforceability of
any of the Loan Documents, (iii) the ability of the Borrower to repay
its obligations under the Loan Documents or of any other Loan Party to
perform its obligations under the Loan Documents, or (iv) the rights
and remedies of the Credit Parties under the Loan Documents.
(2) (a) Neither MobileMedia nor any of its
Subsidiaries shall have sustained since December 31, 1997, any loss or
interference with its respective business from fire, explosion, flood
or other calamity, whether or not covered by insurance or from any
labor dispute or court or governmental action order, or decree (other
than litigation before the Bankruptcy Court which litigation is
disposed of pursuant to the Confirmation Order (described above) other
than as set forth in its audited financial statements as of that date,
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(b) since such date there shall not have been a material increase in
short-term debt or long-term debt of MobileMedia or any of its
Subsidiaries (other than pursuant to the MobileMedia DIP Loan
Documents as in effect on the date hereof, as permitted in the
MobileMedia Merger Documents), and (c) since such date there shall not
have been any change, or any development involving a prospective
change, that could reasonably be expected in the opinion of the
Managing Agents to result in a material adverse effect on (i) the
business, property, financial condition, operations, projections or
prospects of MobileMedia and its Subsidiaries on a consolidated basis;
(ii) the legality, validity or enforceability of any of the Loan
Documents, (iii) the ability of the Borrower to repay its obligations
under the Loan Documents or of any other Loan Party to perform its
obligations under the Loan Documents, or (iv) the rights and remedies
of the Credit Parties under the Loan Documents.
(N) Financial Projections. The Administrative Agent
shall have received financial projections of (1) the Parent and its
Subsidiaries on a consolidated basis, (2) Arch and its Subsidiaries on
a consolidated basis and (3) the Borrower and its Subsidiaries on a
consolidated basis, in each case for the period through the Tranche C
Maturity Date, each in form and substance satisfactory to the Managing
Agents.
(O) FCC Order. The Administrative Agent shall have
received an order of the FCC approving the transfer of the FCC
licenses held by Pre-Merger MobileMedia and its Subsidiaries to the
Borrower or any of its Subsidiaries and terminating the FCC
Proceeding, which order shall be a Final Order or, if such order is
not an Final Order, Required Lenders shall have consented to the
consummation of the MobileMedia Transactions.
(P) Approvals and Consents. All approvals and consents
of all Persons required to be obtained prior to the Merger Effective
Date in connection with the consummation of the transactions
contemplated by the Transaction Documents have been obtained and all
required notices have been given and all required waiting periods have
expired, including, without limitation, under the HSR Act (or
expiration of applicable waiting periods), and no provision of any
applicable statute, law, rule or regulation of any Governmental Body
will prevent the execution, delivery or performance of, or affect the
validity of, the Transaction Documents and the Administrative Agent
shall have received a certificate of an officer of the Parent to the
foregoing effects.
(Q) Existing MobileMedia Debt; Claims. (1) The Existing
MobileMedia Debt shall have been paid in full or discharged, (2) each
of the Dial Page Indenture, the Dial Page Notes, the MobileMedia 1995
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Loan Documents, the MobileMedia DIP Loan Documents, the MobileMedia 9
3/8% Note Indenture, the MobileMedia 9 3/8% Notes, the MobileMedia 10
1/2% Note Indenture and the MobileMedia 10 1/2% Notes shall have been
cancelled or terminated, (3) all other claims and liabilities of
MobileMedia Corp. and its Subsidiaries shall have been discharged
except to the extent provided in the Confirmation Order and the
Amended Plan, (4) all Liens securing any of the Existing MobileMedia
Debt or such other claims shall have been terminated, and (5) the
Administrative Agent shall have received satisfactory evidence of the
foregoing.
(R) Search Reports and Related Documents. The
Administrative Agent shall have received (1) such UCC, tax, patent,
trademark and judgment lien search reports with respect to such
applicable public offices where Liens are filed, as shall be
acceptable to the Administrative Agent, disclosing that there are no
Liens of record in such official's office covering any Collateral or
showing MobileMedia Corp. or any of its Subsidiaries as a debtor
thereunder (other than Liens being released in connection with the
repayment of Existing MobileMedia Debt or otherwise being discharged
pursuant to the Confirmation Order and Permitted Liens), (2) a
certificate of the Parent, dated the Merger Effective Date, certifying
that, as of the Merger Effective Date, there will exist no Liens on
the Collateral other than Permitted Liens, and (3) such Uniform
Commercial Code financing statements or financing statement
amendments, executed by the appropriate Loan Party, as shall be
reasonably requested by the Administrative Agent.
(S) Consummation of MobileMedia Transactions.
(1) Each of the conditions precedent contained in
the MobileMedia Transaction Documents to the consummation of the
MobileMedia Transactions shall have been satisfied (with no waiver of
any condition thereof without the prior written consent of the
Managing Agents), and, substantially simultaneously with the making of
the Tranche A Loans, Tranche B Loans and the Additional Tranche C
Loans on the Merger Effective Date, the MobileMedia Transactions
(other than the MobileMedia Dropdown) shall have been consummated in
accordance with the terms of the MobileMedia Transaction Documents and
all applicable laws, governmental policies, rules and regulations.
(2) All representations and warranties made in the
MobileMedia Transaction Documents by the Parent, Farm Team,
MobileMedia Corp. and Pre-Merger MobileMedia shall be true and correct
in all material respects.
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<PAGE>
(3) The Administrative Agent shall have received a
certificate of the Secretary or Assistant Secretary of the Parent, in
all respects satisfactory to the Administrative Agent, (a) attaching a
true and complete copy of each of the fully executed MobileMedia
Merger Documents, all of which shall be satisfactory to the Managing
Agents, and (b) certifying that (i) each MobileMedia Merger Document
is in full force and effect, (ii) no default or event of default by
the Parent or the Borrower or, to the best of the knowledge of the
Parent and the Borrower, any other party, has occurred and is
continuing thereunder, and (iii) each of the conditions specified in
clauses (1) and (2) of this subsection (S) has been satisfied,
provided, however, that with respect to the representations and
warranties made in the MobileMedia Transaction Documents by
MobileMedia Corp. or any of its Subsidiaries, such certification shall
be made to the best knowledge of the Parent.
(4) The MobileMedia Merger shall occur on or
before March 31, 1999.
(5) The MobileMedia Merger Certificate shall have
been filed with the Secretary of State of the State of Delaware, which
certificate shall also change the name of Farm Team to "MobileMedia
Communications, Inc." and which certificate shall comply as to form
and substance with the General Corporation Law of Delaware.
(6) Each of the MobileMedia Subsidiary Merger
Certificates shall have been filed with the applicable Governmental
Body, each of which certificates shall comply as to form and substance
with applicable state law and which certificate, in the case of the
merger of Pre-Merger MMCA with and into Delaware Subsidiary, shall
also change its name to "MobileMedia Corporation of America".
(T) Subsidiary Guaranty. The Administrative Agent shall
have received a Supplement to the Subsidiary Guaranty duly executed by
each of MobileMedia and each of its Subsidiaries.
(U) Escrow Agreement. The Escrow Agent shall have
received the following documents and instruments: (1) the Unrestricted
Subsidiary Security Agreement (Bank), the Unrestricted Subsidiary
Security Agreement (9 1/2% Indenture) and the Unrestricted Subsidiary
Security Agreement (14% Indenture), each duly executed by the parties
thereto, (2) certificates representing all of the issued and
outstanding shares of capital Stock of MobileMedia and each of its
Subsidiaries and undated stock powers with respect thereto duly
executed in blank by the applicable Loan Parties, (3) instruments
constituting the Pledged Debt (under and as defined in each of the
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<PAGE>
Triggering Collateral Documents), including the MobileMedia
Intercompany Note, indorsed in blank by the applicable Loan Party, (4)
the Triggering Collateral Documents and the Indenture Collateral
Documents, in each case duly executed by each of the parties thereto,
(5) Grants of Security Interest (Trademarks), duly executed by each of
MobileMedia and each of its Subsidiaries which owns a trademark, (6)
Grants of Security Interest (Patents), duly executed by each of
MobileMedia and each of its Subsidiaries which owns a patent, (7)
Powers of Attorney, duly executed by each of the MobileMedia and each
of its Subsidiaries, (8) duly executed UCC-1 Financing Statements with
respect to the Collateral for filing in each office as determined by
the Administrative Agent and naming the Collateral Agent as "Secured
Party", (9) additional sets of UCC-1 Financing Statements in all
respects identical to UCC- 1 Financing Statements referred to in
clause (8) above except that the Applicable Arch Indenture Trustees
are named as "Secured Party" and (10) all executed original
counterparts of each Triggering Collateral Document and each Indenture
Collateral Document.
(V) Due Diligence. The Managing Agents' legal,
environmental and tax due diligence investigations with respect to the
Parent, Arch, the Borrower and their respective Subsidiaries,
MobileMedia Corp. and its Subsidiaries, the MobileMedia Transactions
shall be satisfactory in all respects to the Managing Agents, and any
supplemental business, financial or accounting due diligence that any
of the Managing Agents determines has become necessary shall not have
disclosed information not previously disclosed to the Managing Agents
which causes the results of such diligence not to be satisfactory in
all respects to the Managing Agents.
(W) Replacement Schedules. The Administrative Agent
shall have received replacement Schedules 4.1, 8.2 and 8.6 to each
Credit Agreement, each in form and substance satisfactory to the
Administrative Agent.
(X) Opinions of Counsel to the Loan Parties. The
Administrative Agent shall have received an opinion of (A) Hale and
Dorr, counsel to the Loan Parties, and (B) Garry Watzke, Esq., General
Counsel of the Loan Parties, each addressed to the Administrative
Agent, the other Credit Parties and Special Counsel, dated the Merger
Effective Date and in form and substance satisfactory to the
Administrative Agent.
(Y) Opinions of FCC Counsel. The Administrative Agent
shall have received an opinion of Wilkinson, Barker, Knauer & Quinn,
LLP, FCC counsel to Arch and its Subsidiaries, addressed to the
Administrative Agent and the other Credit Parties, dated the Merger
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<PAGE>
Effective Date and in form and substance satisfactory to the
Administrative Agent.
(Z) Fees. All fees payable on the Merger Effective Date
shall have been paid, including the reasonable fees and expenses of
Special Counsel.
(AA) Other Documents. The Administrative Agent shall
have received such other documents and assurances as the
Administrative Agent shall reasonably require.
12. Section 8.6 of the Credit Agreement is amended by deleting the word
"and" at the end of subsection (m) and adding it to the end of subsection (n)
and by adding a new subsection (o) to each thereof to read as follows:
(o) the MobileMedia Transactions to the extent permitted by
Section 8.3(iv).
13. Section 8.15 of the Credit Agreement is amended by replacing the phrase
"the Replacement Notes, the Replacement Indenture" appearing in such section
with the phrase "the Replacement Notes (if existing), the Replacement Indenture
(if existing), the New Arch Notes (if existing), the New Arch Indenture (if
existing)".
14. Section 9.1(d) of the Credit Agreement is amended in its entirety to
read as follows:
(d) The failure of any Loan Party to observe or perform any
covenant or agreement contained in Section 7.2(f), 7.3, 7.11, 7.12,
7.13, 7.14, 7.15, 7.16, 7.17, 7.18, 7.19 or 7.20, Section 8 or Section
11.1 of this Agreement, Section 2 of the Subsidiary Guaranty, Section
2 or 8(o) of the Parent Guaranty or Section 2 or 5(o) of the Arch
Guaranty; or
15. Section 9.1(m) of the Credit Agreement is hereby amended to read as
follows:
(m)(i) The FCC or any other Governmental Body cancels or revokes
any of Arch's or any of its Subsidiaries' material licenses, or fails
to renew any such license or licenses, which cancellation, revocation
or failure to renew could reasonably be expected to have a Material
Adverse Effect; or
(ii) If Required Lenders have consented to the consummation
of the MobileMedia Transactions at a time when the FCC order approving
the transfer of all material licenses of MobileMedia and its
Subsidiaries to the Borrower or any of its Subsidiaries and
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<PAGE>
terminating the FCC Proceeding is not a Final Order, the withdrawal or
modification in any material respect of the order in effect at the
time of the consummation of the MobileMedia Transactions; or
16. Section 11.1(b)(iii)(A) of the Credit Agreement is hereby amended by
inserting immediately prior to the comma appearing at the end thereof the phrase
"or increase the aggregate outstanding principal amount of the Tranche C Loans
to an amount greater than the aggregate outstanding principal amount of Tranche
C Loans as of the Merger Effective Date after giving effect to the making of the
Additional Tranche C Loans".
17. Section 11.12 of the Credit Agreement is hereby amended in its entirety
to read as follows:
11.12 Confidentiality.
Each of the Administrative Agent and the other Credit
Parties agrees (on behalf of itself and each of its affiliates,
directors, officers, employees and representatives) to use reasonable
precautions to keep confidential, in accordance with their customary
procedures for handling confidential information of the same nature,
all non-public information supplied by Arch, the Borrower or any of
their respective Subsidiaries pursuant to this Agreement which (a) is
identified by such Person as being confidential at the time the same
is delivered to such Credit Party or the Administrative Agent, or (b)
constitutes any financial statement, financial projections or
forecasts, budget, compliance certificate, audit report, management
letter or accountants' certification delivered hereunder
(collectively, the "Confidential Information"), provided, however,
that nothing herein shall limit the disclosure of any Confidential
Information (i) to the extent required by statute, rule, regulation or
judicial process, (ii) on a confidential basis, to counsel to any of
the Credit Parties or the Administrative Agent, (iii) to bank
examiners and other governmental bodies or examiners having
jurisdiction over such Credit Party, auditors or accountants, and any
analogous counterpart thereof, (iv) to the Administrative Agent or the
Credit Parties, (v) in connection with any litigation to which any one
or more of the Credit Parties or the Administrative Agent is a party,
provided that if practicable to do so under the circumstances, Arch or
the Borrower, as the case may be, is given prior notice of, and an
opportunity to contest, the production of such Confidential
Information (which such notice and opportunity shall be reasonable
under the circumstances), (vi) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) agrees in writing
to keep such Confidential Information confidential on substantially
the same basis as set forth in this Section, or (vii) to affiliates of
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<PAGE>
the Administrative Agent or each Credit Party. Notwithstanding the
provisions of clause (vii) above, neither the Administrative Agent nor
any Credit Party shall disclose any such Confidential Information to
any of its respective affiliates, directors, officers, employees or
representatives except to the extent that it or they have a need to
know such Confidential Information in connection with the structuring
or administration of the Loans or any Loan Document, any assignment or
participation thereof or activities incidental thereto.
18. Exhibit E to the Credit Agreement is hereby replaced with the new
Exhibit E in the form annexed hereto, and Exhibits L-1, L-2, and L-3 to the
Credit Agreement are hereby replaced with new Exhibits L-1, L-2, and L-3, each
revised so as to add "patents" to the Collateral and each in form and substance
satisfactory to the Administrative Agent.
19. Barclays Bank PLC is hereby appointed as an additional Managing Agent,
and such defined term "Managing Agent" in the Credit Agreement is hereby amended
so as to include Barclays Bank PLC.
20. Notwithstanding the provisions of Section 11.5 of the Credit Agreement,
each Lender hereby agrees that it shall not assign nor grant any participation
in (other than to a Federal Reserve Bank) any of its rights or obligations under
any Loan Document (other than with respect to (a) the Proposed Aggregate Tranche
B Commitment Increase, (b) the Proposed Aggregate Tranche A Commitment Increase,
as defined in the Tranche A and Tranche C Credit Agreement Amendment, and (c)
the Proposed Additional Tranche C Loans as defined in the Tranche A and Tranche
C Credit Agreement Amendment) during the period from the Amendment Effective
Date through and including the earlier of (i) December 1, 1998, and (ii) the
date on which the Managing Agents notify the Borrower, the Lenders and any
prospective lender of the allocation of the Proposed Facility Increase Maximum
Amount in connection with the "primary syndication" thereof. For the purposes of
this paragraph, the "primary syndication" shall mean a primary syndication
conducted in a manner consistent with customary practice for syndications of
similar facilities, including the scheduling and holding of a bank meeting, a
period for the receipt of commitments and the final allocation of commitments.
21. Each Credit Party and each Loan Party hereby agrees and consents to the
Tranche A and Tranche C Credit Agreement Amendment, the Arch Guaranty Amendment,
the Parent Guaranty Amendment and the Collateral Document Amendments.
22. Paragraphs 1 - 21 of this Amendment shall not be effective until the
prior or simultaneous fulfillment of the following conditions (the "Amendment
Effective Date"):
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<PAGE>
(a) The Administrative Agent shall have received this Amendment, duly
executed by a duly authorized officer or officers of the Borrower, the
Parent, the Subsidiary Guarantors, the Administrative Agent and each other
Credit Party.
(b) The Administrative Agent shall have received Amendment No. 1,
dated the date hereof, to the Tranche A and Tranche C Credit Agreement (the
"Tranche A and Tranche C Credit Agreement Amendment"), duly executed by a
duly authorized officer or officers of the Borrower, the Parent, the
Subsidiary Guarantors, the Administrative Agent and each other Credit Party
(each under and as defined in the Tranche A and Tranche C Credit
Agreement).
(c) The Administrative Agent shall have received Amendment No. 1,
dated the date hereof, to the Arch Guaranty (the "Arch Guaranty
Amendment"), duly executed by a duly authorized officer or officers of Arch
and the Collateral Agent, in form and substance satisfactory to the
Administrative Agent.
(d) The Administrative Agent shall have received Amendment No. 1,
dated the date hereof, to the Parent Guaranty (the "Parent Guaranty
Amendment"), duly executed by a duly authorized officer or officers of the
Parent and the Collateral Agent, in form and substance satisfactory to the
Administrative Agent.
(e) The Administrative Agent shall have received a certificate of the
Secretary or Assistant Secretary of each of Loan Party: (i) attaching a
true and complete copy of the resolutions of its Managing Person
authorizing this Amendment and the Collateral Document Amendments (as
defined below), in form and substance satisfactory to the Administrative
Agent, (ii) certifying that its certificate of incorporation and by-laws
have not been amended since June 29, 1998, or, if so, setting forth the
same and (iii) setting forth the incumbency of its officer or officers who
may sign this Amendment and the Collateral Document Amendments, including
therein a signature specimen of such officer or officers.
(f) The Administrative Agent shall have received (i) Amendment No. 1
to the Borrower Security Agreement (Bank), (ii) Amendment No. 1 to the Arch
Security Agreement (Bank), (iii) Amendment No. 1 to the Restricted
Subsidiary Security Agreement (Bank), each amended so as to add "patents"
to the Collateral and each in form and substance satisfactory to the
Administrative Agent (the "Triggering Collateral Document Amendments") and
(iv) UCC-3 Amendments as shall be required by the Administrative Agent.
(g) The Escrow Agent shall have received (i) Amendment No. 1 to the
Borrower Security Agreement (9 1/2% Indenture), (ii) Amendment No. 1 to the
Borrower Security Agreement (14% Indenture), (iii) Amendment No. 1 to the
Arch Security Agreement (9 1/2% Indenture, (iv) Amendment No. 1 to the Arch
Security Agreement (14% Indenture), (v) Amendment No. 1 to the Restricted
- 27 -
<PAGE>
Subsidiary Security Agreement (9 1/2% Indenture) (14% Indenture), (vi)
Amendment No. 1 to the Restricted Subsidiary Security Agreement (14%
Indenture), each amended so as to add "patents" to the Collateral and each
in form and substance satisfactory to the Administrative Agent (the "Escrow
Collateral Document Amendments", and together with the Triggering
Collateral Document Amendments, the "Collateral Document Amendments") and
(vii) UCC-3 Amendments as shall be required by the Administrative Agent.
(h) The Administrative Agent shall have received an (i) opinion of
Hale and Dorr, counsel to the Loan Parties, and (ii) an opinion of Garry
Watzke, Esq., General Counsel of the Loan Parties, and each in form and
substance satisfactory to the Administrative Agent.
(i) All fees and expenses payable on the effectiveness of this
Amendment, including the reasonable fees and expenses of Special Counsel
incurred to date, shall have been paid.
(j) The representations and warranties contained in the Loan Documents
shall be true and correct in all material respects (except to the extent
such representations and warranties specifically relate to an earlier date)
and no Default or Event of Default shall exist, and the Administrative
Agent shall have received a certificate of an officer of the Borrower,
dated the Amendment Effective Date, certifying to such effect.
(k) The Administrative Agent shall have received such other documents
as it shall reasonably request.
23. The Borrower and the Parent each hereby (i) reaffirms and admits the
validity and enforceability of the Credit Agreement (as amended by this
Amendment) and the other Loan Documents and all of its obligations thereunder,
(ii) represents and warrants that there exists no Default or Event of Default,
and (iii) represents and warrants that the representations and warranties
contained in the Loan Documents, including the Credit Agreement as amended by
this Amendment (other than the representations and warranties made as of a
specific date) are true and correct in all material respects on and as of the
date hereof, except to the extent that such representations and warranties are
no longer true or correct as a result of events, acts, transactions or
occurrences after the Second Restatement Effective Date which are permitted
under the Credit Agreement.
24. This Amendment may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute one agreement. It
shall not be necessary in making proof of this Amendment to produce or account
for more than one counterpart signed by the party to be charged.
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<PAGE>
25. This Amendment is being delivered in and is intended to be performed in
the State of New York and shall be construed and enforceable in accordance with,
and be governed by, the internal laws of the State of New York without regard to
principles of conflict of laws.
26. Except as amended hereby, the Credit Agreement shall in all other
respects remain in full force and effect.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
the Second Amended and Restated Credit Agreement (Tranche B Facility) to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
ARCH PAGING, INC.
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasure
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
THE BANK OF NEW YORK,
Individually, as Managing Agent and as
Administrative Agent
By: /s/ Geoffrey Brooks
Name: Geoffrey Brooks
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
TORONTO DOMINION (TEXAS), INC.,
Individually, as Managing Agent and as
Syndication Agent
By: /s/ Jorge A. Garcia
Name: Jorge A. Garcia
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
ROYAL BANK OF CANADA,
Individually, as Managing Agent and as
Documentation Agent
By: /s/ Thomas M Byrne
Name: Thomas M Byrne
Title: Senior Manager
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
BARCLAYS BANK PLC, Individually and as a
Managing Agent
By: /s/ Daniele Iacovone
Name: Daniele Iacovone
Title: Associate Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
FIRST UNION NATIONAL BANK
By: /s/ C.Mark Hedrick
Name: C.Mark Hedrick
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
Name: Jeffrey W. Maillet
Title: Sr. Vice Pres. & Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital
Management, Inc., as Collateral Manager
By: /s/ Jeffrey W. Maillet
Name: Jeffrey W. Maillet
Title: Sr. Vice Pres. & Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Jeffrey E. Hauser
Name: Jeffrey E. Hauser
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
FLEET NATIONAL BANK
By: /s/ Jeffrey J. McLaughlin
Name: Jeffrey J. McLaughlin
Title: SVP
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
BANKBOSTON, N.A.
By: /s/ Michael A. Ashton
Name: Michael A. Ashton
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Mark F. Mylon
Name: Mark F. Mylon
Title: Manager - Operations
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/ Jorge Arrieta
Name: Jorge Arrieta
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
SOCIETE GENERALE
By: /s/ Mark Vigil
Name: Mark Vigil
Title: Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
BEAR STEARNS INVESTMENT PRODUCTS INC.
By: /s/ Harry Rosenberg
Name: Harry Rosenberg
Title: Authorized Signatory
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
CONSENTED TO BY:
ARCH MICHIGAN, INC.
ARCH CAPITOL DISTRICT, INC.
ARCH CONNECTICUT VALLEY, INC.
ARCH SOUTHEAST COMMUNICATIONS, INC.
ARCH COMMUNICATIONS SERVICES, INC.
BECKER BEEPER, INC.
THE BEEPER COMPANY OF AMERICA, INC.
LUND PRODUCTS SALES COMPANY
THE WESTLINK PAGING COMPANY OF
NEW MEXICO, INC.
KELLEY'S RADIO TELEPHONE, INC.
ANSWER IOWA, INC.
WESTLINK LICENSEE CORPORATION
WESTLINK OF NEW MEXICO LICENSEE
CORPORATION
ANSWER IOWA LICENSEE
CORPORATION
KELLEY'S LICENSEE CORPORATION,
THE WESTLINK COMPANY
AS TO EACH OF THE FOREGOING:
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
CONSENTED TO BY:
CASCADE MOBILE COMMUNICATIONS
LIMITED PARTNERSHIP
By: Arch Michigan, Inc., its
General Partner
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
TELECOMM/KRT PARTNERSHIP
By: Arch Michigan, Inc., a
General Partner
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
By: Kelley's Radio Telephone, Inc., a
General Partner
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
ARCH COMMUNICATIONS, INC.
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
CONSENTED TO BY:
ARCH COMMUNICATIONS GROUP, INC.
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
<PAGE>
AMENDMENT NO. 2
TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
AMENDMENT NO. 2 (this "Amendment"), dated as of December 8, 1998, to the
Second Amended and Restated Credit Agreement (Tranche B Facility) (the "Credit
Agreement"), dated as of June 29, 1998, by and among Arch Paging, Inc. (the
"Borrower"), the Lenders party thereto, The Bank of New York, Royal Bank of
Canada, Toronto Dominion (Texas), Inc. and Barclays Bank PLC, as Managing
Agents, Royal Bank of Canada, as Documentation Agent, Toronto Dominion (Texas),
Inc., as Syndication Agent, and The Bank of New York, as Administrative Agent,
as amended by Amendment No. 1, dated as of September 14, 1998.
RECITALS
A. Capitalized terms used herein which are not defined herein shall have
the respective meanings ascribed thereto in the Credit Agreement as amended
hereby.
B. In connection with the Bankruptcy Proceeding, the Borrower desires to
amend the terms and provisions of certain of the MobileMedia Transaction
Documents.
C. The Borrower desires to merge certain of its Subsidiaries into a single
Subsidiary within 45 days following the date hereof.
D. The Borrower desires to make an equity contribution in the amount of
$250,000 to Arch Latin America, an entity in which the Borrower has a minority
interest.
E. The Borrower requests that the Required Lenders amend the Loan Documents
so as to permit the foregoing requested activities.
Accordingly, in consideration of the Recitals and the covenants, conditions
and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. The following definitions contained in Section 1.1 of the Credit
Agreement are amended in their entirety to read as follows:
"Amended Plan": the Debtors' Third Amended Joint Plan of
Reorganization, dated December 1, 1998, filed by MobileMedia Corp. and its
Subsidiaries in the Bankruptcy Proceeding.
"Merger Agreement": the Agreement and Plan of Merger, dated as of
August 18, 1998, by and among the Parent, Farm Team, MobileMedia Corp. and
Pre-Merger MobileMedia, as amended by the First Amendment, dated as of
<PAGE>
September 3, 1998, and by the Second Amendment, dated as of December 1,
1998.
"MobileMedia Subsidiary Transactions": collectively, all of the
transactions (other than the MobileMedia Merger) described in Section
4.2(B) of the Amended Plan.
"MobileMedia Transaction Documents": collectively, the MobileMedia
Merger Documents, the MobileMedia Subsidiary Transaction Documents, and all
other documents executed and delivered in connection with the MobileMedia
Transactions, as any such document may have been amended, supplemented or
otherwise modified on or prior to December 3, 1998.
"Standby Purchase Commitment Letters": collectively, the commitment
letters, each dated August 18, 1998, made by the Standby Purchasers
evidencing their commitments to purchase common Stock of the Parent and
Parent Warrants in the event any Rights are not exercised in the Rights
Offering, as amended by the amendment dated as of September 5, 1998 and by
the amendment dated as of December 1, 1998.
2. Section 1.1 of the Credit Agreement is amended by adding the following
definition in its appropriate alphabetical order:
"API Subsidiary Merger": the merger of certain Subsidiaries of the
Borrower into a single Subsidiary of the Borrower on terms and conditions
satisfactory to the Administrative Agent.
3. Section 7.2(f) of the Credit Agreement is amended by inserting the
parenthetical phrase "(other than with respect to the API Subsidiary Merger)"
immediately after (i) the reference to Section 8.3(i) appearing on the second
line therein, and (ii) the reference to Section 8.8(b) appearing on the fifth
line therein.
4. Section 8.3(iv)(S)(1) of the Credit Agreement is amended in its entirety
to read as follows:
(1) Each of the conditions precedent contained in the
MobileMedia Transaction Documents to the consummation of the MobileMedia
Transactions shall have been satisfied (with no waiver of any condition
thereof without the prior written consent of the Managing Agents), and,
substantially simultaneously with the making of the Tranche A Loans,
Tranche B Loans and the Additional Tranche C Loans on the Merger Effective
Date, the MobileMedia Transactions (other than the MobileMedia Dropdown)
shall have been consummated in accordance with the terms of the MobileMedia
Transaction Documents (with no amendment, supplement or other modification
to any term or provision contained therein without the prior written
consent of the Required Lenders (other than any amendment, supplement or
other modification to any nonmaterial term or provision contained therein
with the prior written consent of the Managing Agents)) and all applicable
laws, governmental policies, rules and regulations.
- 2 -
<PAGE>
5. Section 8.6 of the Credit Agreement is amended by (i) deleting the word
"and" appearing at the end of subsection (n) therein, (ii) replacing the period
appearing at the end of subsection (o) therein with "; and", and (iii) adding a
new subsection to the end thereof to read as follows:
(p) the Parent or any Subsidiary of the Parent may make a
one-time equity contribution to Arch Latin America in an amount not to
exceed $250,000, provided that no Default or Event of Default shall exist
immediately before or after giving effect thereto.
6. Each lender and each Loan Party agrees and consents to the terms of (i)
Amendment No. 2 to the Parent Guaranty, substantially in the form of Attachment
I annexed hereto ("Amendment No. 2 to the Parent Guaranty"), and (ii) Amendment
No. 2 to the Arch Guaranty, substantially in the form of Attachment II annexed
hereto ("Amendment No. 2 to the Arch Guaranty").
7. Paragraphs 1-6 of this Amendment shall not be effective until the prior
or simultaneous fulfillment of the following conditions:
(a) The Administrative Agent shall have received this Amendment duly
executed by a duly authorized officer or officers of the Borrower, the
Parent, Arch, the Subsidiary Guarantors, the Administrative Agent and the
Required Lenders.
(b) The Administrative Agent shall have received Amendment No. 2 to
the Second Amended and Restated Credit Agreement (Tranche A and Tranche C
Facilities), dated the date hereof, duly executed by a duly authorized
officer or officers of the Borrower, the Parent, Arch, the Subsidiary
Guarantors, the Administrative Agent thereunder and the Required Lenders.
(c) The Administrative Agent shall have received Amendment No. 2 to
the Parent Guaranty, duly executed by a duly authorized officer or officers
of the Parent, the Borrower and the Collateral Agent.
(d) The Administrative Agent shall have received Amendment No. 2 to
the Arch Guaranty, duly executed by a duly authorized officer or officers
of Arch, the Borrower and the Collateral Agent.
(e) All fees and expenses payable on the effectiveness of this
Amendment, including the reasonable fees and expenses of Special Counsel
incurred to date, shall have been paid.
(f) The representations and warranties contained in the Loan Documents
shall be true and correct in all material respects (except to the extent
such representations and warranties specifically relate to an earlier date)
and no Default or Event of Default shall exist.
(g) The Administrative Agent shall have received such other documents
as it shall reasonably request.
- 3 -
<PAGE>
8. Each Loan Party hereby (i) reaffirms and admits the validity and
enforceability of each Loan Document (as it may be amended by this Amendment) to
which it is a party and all of its obligations thereunder, (ii) represents and
warrants that there exists no Default or Event of Default, and (iii) represents
and warrants that the representations and warranties contained in the Loan
Documents, including the Credit Agreement as amended by this Amendment, (other
than the representations and warranties made as of a specific date) are true and
correct in all material respects on and as of the date hereof, except to the
extent that such representations and warranties are no longer true or correct as
a result of events, acts, transactions or occurrences after the Second
Restatement Effective Date which are permitted under the Credit Agreement.
9. This Amendment may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute one agreement. It
shall not be necessary in making proof of this Amendment to produce or account
for more than one counterpart signed by the party to be charged.
10. This Amendment is being delivered in and is intended to be performed in
the State of New York and shall be construed and enforceable in accordance with,
and be governed by, the internal laws of the State of New York without regard to
principles of conflict of laws.
11. Except as amended hereby, the Credit Agreement and each other Loan
Document shall in all other respects remain in full force and effect.
[signature pages follow]
- 4 -
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
the Second Amended and Restated Credit Agreement (Tranche B Facility) to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
ARCH PAGING, INC.
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
THE BANK OF NEW YORK,
Individually, as Letter of Credit
Issuer, as Managing Agent and as
Administrative Agent
By: /s/ Geoffrey C. Brooks
Name: Geoffrey C. Brooks
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
TORONTO DOMINION (TEXAS), INC.,
Individually, as Managing Agent and as
Syndication Agent
By: /s/ Anne C. Favoriti
Name: Anne C. Favoriti
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
ROYAL BANK OF CANADA,
Individually, as Managing Agent and as
Documentation Agent
By: /s/ Thomas M. Byrne
Name: Thomas M. Byrne
Title: Senior Manager
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
BARCLAYS BANK PLC, Individually and as
a Managing Agent
By: /s/ Philip Caparis
Name: Philip Caparis
Title: Associate Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
FIRST UNION NATIONAL BANK
By: /s/ C. Mark Hedrick
Name: C. Mark Hedrick
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital
Management, Inc., as Collateral
Manager
By: /s/ Jeffrey W. Maillet
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Steven J. McGehrin
Name: Steven J. McGehrin
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Mark F. Mylon
Name: Mark F. Mylon
Title: Manager - Operations
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
SOCIETE GENERALE
By: /s/ Mark Vigil
Name: Mark Vigil
Title: Director
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
BEAR STEARNS INVESTMENT PRODUCTS INC.
By: /s/ Gregory Hanley
Name: Gregory Hanley
Title: Vice President
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
CONSENTED TO BY:
ARCH MICHIGAN, INC.
ARCH CAPITOL DISTRICT, INC.
ARCH CONNECTICUT VALLEY, INC.
ARCH SOUTHEAST COMMUNICATIONS, INC.
ARCH COMMUNICATIONS SERVICES, INC.
BECKER BEEPER, INC.
THE BEEPER COMPANY OF AMERICA, INC.
LUND PRODUCTS SALES COMPANY
THE WESTLINK PAGING COMPANY OF
NEW MEXICO, INC.
KELLEY'S RADIO TELEPHONE, INC.
ANSWER IOWA, INC.
WESTLINK LICENSEE CORPORATION
WESTLINK OF NEW MEXICO LICENSEE
CORPORATION
ANSWER IOWA LICENSEE
CORPORATION
KELLEY'S LICENSEE CORPORATION,
THE WESTLINK COMPANY
AS TO EACH OF THE FOREGOING:
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
CONSENTED TO BY:
CASCADE MOBILE COMMUNICATIONS
LIMITED PARTNERSHIP
By: Arch Michigan, Inc., its
General Partner
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
TELECOMM/KRT PARTNERSHIP
By: Arch Michigan, Inc., a
General Partner
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
By: Kelley's Radio Telephone, Inc.,
a General Partner
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
ARCH COMMUNICATIONS, INC.
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
<PAGE>
ARCH PAGING, INC.
AMENDMENT NO. 2 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(TRANCHE B FACILITY)
CONSENTED TO BY:
ARCH COMMUNICATIONS GROUP, INC.
By: /s/ Gerald J. Cimmino
Name: Gerald J. Cimmino
Title: VP & Treasurer
<PAGE>
Attachment I
AMENDMENT NO. 2
TO THE
PARENT GUARANTY
AMENDMENT NO. 2 (this "Amendment"), dated as of December 8, 1998, to and
under the Amended and Restated Parent Guaranty and Pledge Agreement (the "Parent
Guaranty"), dated as of June 29, 1998, between Arch Communications Group, Inc.
(the "Parent") and The Bank of New York, as Collateral Agent, as amended by
Amendment No. 1, dated as of September 9, 1998.
RECITALS
A. Reference is made to (i) the Second Amended and Restated Credit
Agreement (Tranche A and Tranche C Facilities) (the "Tranche A and Tranche C
Credit Agreement"), dated as of June 29, 1998, by and among Arch Paging, Inc.
(the "Borrower"), the Lenders party thereto, The Bank of New York, Royal Bank of
Canada, Toronto Dominion (Texas), Inc. and Barclays PLC, as Managing Agents,
Royal Bank of Canada, as Documentation Agent, Toronto Dominion (Texas), Inc., as
Syndication Agent, and The Bank of New York, as Administrative Agent, as
amended, and (ii) the Second Amended and Restated Credit Agreement (Tranche B
Facility) (the "Tranche B Credit Agreement", and together with the Tranche A and
Tranche C Credit Agreement, the "Credit Agreements"), dated as of June 29, 1998,
by and among the Borrower, the Lenders party thereto, The Bank of New York,
Royal Bank of Canada, Toronto Dominion (Texas), Inc. and Barclays PLC, as
Managing Agents, Royal Bank of Canada, as Documentation Agent, Toronto Dominion
(Texas), Inc., as Syndication Agent, and The Bank of New York, as Administrative
Agent, as amended. Capitalized terms used herein which are not defined herein
shall have the respective meanings ascribed thereto in the Credit Agreements as
amended.
B. In connection with the Bankruptcy Proceeding, the Borrower desires to
amend the terms and provisions of certain of the MobileMedia Transaction
Documents.
C. The Borrower desires to merge certain of its Subsidiaries into a single
Subsidiary within 45 days following the date hereof.
D. The Borrower desires to make an equity contribution in the amount of
$250,000 to Arch Latin America, an entity in which the Borrower has a minority
interest.
E. In order to permit and facilitate the foregoing transactions, the Parent
and the Borrower have requested that the Required Lenders and the Collateral
Agent agree to certain amendments to the Parent Guaranty as set forth below, and
the Required Lenders and the Collateral Agent are willing to do so subject to
the terms and conditions set forth below.
<PAGE>
Accordingly, in consideration of the Recitals and the covenants, conditions
and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. Section 8(b)(vi) of the Parent Guaranty is amended by inserting the
parenthetical phrase "(other than with respect to the API Subsidiary Merger)"
immediately after (i) the reference to Section 8.3(i) appearing on the second
line therein, and (ii) the reference to Section 8.8(b) appearing on the fifth
line therein.
2. Paragraph 1 of this Amendment shall not be effective until the prior or
simultaneous fulfillment of the following:
(a) The Administrative Agent shall have received this Amendment, duly
executed by a duly authorized officer or officers of the Parent, the
Borrower and the Collateral Agent.
(b) The Administrative Agent shall have received Amendment No. 2,
dated the date hereof, to the Tranche B Credit Agreement, duly executed by
a duly authorized officer or officers of the Borrower, the Parent, Arch,
the Subsidiary Guarantors, the Administrative Agent and the Required
Lenders (each under and as defined in the Tranche B Credit Agreement).
(c) The Administrative Agent shall have received Amendment No. 2,
dated the date hereof, to the Tranche A and Tranche C Credit Agreement,
duly executed by a duly authorized officer or officers of the Borrower, the
Parent, Arch, the Subsidiary Guarantors, the Administrative Agent and the
Required Lenders (each under and as defined in the Tranche A and Tranche C
Credit Agreement).
(d) The Administrative Agent shall have received Amendment No. 2,
dated the date hereof, to the Arch Guaranty, duly executed by a duly
authorized officer or officers of Arch, the Borrower and the Collateral
Agent, in form and substance satisfactory to the Administrative Agent.
(e) All fees and expenses payable on the effectiveness of this
Amendment, including the reasonable fees and expenses of Special Counsel
incurred to date, shall have been paid.
(f) The Administrative Agent shall have received such other documents
as it shall reasonably request.
3. The Parent hereby (i) reaffirms and admits the validity and
enforceability of the Parent Guaranty (as amended by this Amendment) and the
other Loan Documents to which it is a party and all of its obligations
thereunder, (ii) represents and warrants that there exists no Default or Event
of Default, and (iii) represents and warrants that the representations and
warranties contained in the Loan Documents, including the Parent Guaranty as
<PAGE>
amended by this Amendment (other than the representations and warranties made as
of a specific date) are true and correct in all material respects on and as of
the date hereof, except to the extent that such representations and warranties
are no longer true or correct as a result of events, acts, transactions or
occurrences after the Restatement Effective Date which are permitted under the
Credit Agreements.
4. This Amendment may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute one agreement. It
shall not be necessary in making proof of this Amendment to produce or account
for more than one counterpart signed by the party to be charged.
5. This Amendment is being delivered in and is intended to be performed in
the State of New York and shall be construed and enforceable in accordance with,
and be governed by, the internal laws of the State of New York without regard to
principles of conflict of laws.
6. Except as amended hereby, the Parent Guaranty shall in all other
respects remain in full force and effect.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
the Parent Guaranty to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
ARCH COMMUNICATIONS GROUP, INC.
By:
Name:
Title:
THE BANK OF NEW YORK, as Collateral
Agent
By:
Name:
Title:
ACCEPTED AND AGREED TO:
ARCH PAGING, INC.
By:
Name:
Title:
<PAGE>
Attachment II
AMENDMENT NO. 2
TO THE
ARCH GUARANTY
AMENDMENT NO. 2 (this "Amendment"), dated as of December 8, 1998, to and
under the Arch Guaranty (the "Arch Guaranty"), dated as of June 29, 1998,
between Arch Communications, Inc. ("Arch") and The Bank of New York, as
Collateral Agent, as amended by Amendment No. 1, dated as of September 9, 1998.
RECITALS
A. Reference is made to (i) the Second Amended and Restated Credit
Agreement (Tranche A and Tranche C Facilities) (the "Tranche A and Tranche C
Credit Agreement"), dated as of June 29, 1998, by and among Arch Paging, Inc.
(the "Borrower"), the Lenders party thereto, The Bank of New York, Royal Bank of
Canada, Toronto Dominion (Texas), Inc. and Barclays PLC, as Managing Agents,
Royal Bank of Canada, as Documentation Agent, Toronto Dominion (Texas), Inc., as
Syndication Agent, and The Bank of New York, as Administrative Agent, as
amended, and (ii) the Second Amended and Restated Credit Agreement (Tranche B
Facility) (the "Tranche B Credit Agreement", and together with the Tranche A and
Tranche C Credit Agreement, the "Credit Agreements"), dated as of June 29, 1998,
by and among the Borrower, the Lenders party thereto, The Bank of New York,
Royal Bank of Canada, Toronto Dominion (Texas), Inc. and Barclays PLC, as
Managing Agents, Royal Bank of Canada, as Documentation Agent, Toronto Dominion
(Texas), Inc., as Syndication Agent, and The Bank of New York, as Administrative
Agent, as amended. Capitalized terms used herein which are not defined herein
shall have the respective meanings ascribed thereto in the Credit Agreements as
amended.
B. In connection with the Bankruptcy Proceeding, the Borrower desires to
amend the terms and provisions of certain of the MobileMedia Transaction
Documents.
C. The Borrower desires to merge certain of its Subsidiaries into a single
Subsidiary within 45 days following the date hereof.
D. The Borrower desires to make an equity contribution in the amount of
$250,000 to Arch Latin America, an entity in which the Borrower has a minority
interest.
E. In order to permit and facilitate the foregoing transactions, the Parent
and the Borrower have requested that the Required Lenders and the Collateral
Agent agree to certain amendments to the Arch Guaranty as set forth below, and
the Required Lenders and the Collateral Agent are willing to do so subject to
the terms and conditions set forth below.
<PAGE>
Accordingly, in consideration of the Recitals and the covenants, conditions
and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. Section 8(b)(vi) of the Parent Guaranty is amended by inserting the
parenthetical phrase "(other than with respect to the API Subsidiary Merger)"
immediately after (i) the reference to Section 8.3(i) appearing on the second
line therein, and (ii) the reference to Section 8.8(b) appearing on the fifth
line therein.
2. Paragraph 1 of this Amendment shall not be effective until the prior or
simultaneous fulfillment of the following conditions:
(a) The Administrative Agent shall have received this Amendment, duly
executed by a duly authorized officer or officers of Arch, the Borrower and
the Collateral Agent.
(b) The Administrative Agent shall have received Amendment No. 2,
dated the date hereof, to the Tranche B Credit Agreement, duly executed by
a duly authorized officer or officers of the Borrower, the Parent, Arch,
the Subsidiary Guarantors, the Administrative Agent and the Required
Lenders (each under and as defined in the Tranche B Credit Agreement).
(c) The Administrative Agent shall have received Amendment No. 2,
dated the date hereof, to the Tranche A and Tranche C Credit Agreement,
duly executed by a duly authorized officer or officers of the Borrower, the
Parent, Arch, the Subsidiary Guarantors, the Administrative Agent and the
Required Lenders (each under and as defined in the Tranche A and Tranche C
Credit Agreement).
(d) The Administrative Agent shall have received Amendment No. 2,
dated the date hereof, to the Parent Guaranty, duly executed by a duly
authorized officer or officers of the Parent, the Borrower and the
Collateral Agent, in form and substance satisfactory to the Administrative
Agent.
(e) All fees and expenses payable on the effectiveness of this
Amendment, including the reasonable fees and expenses of Special Counsel
incurred to date, shall have been paid.
(f) The Administrative Agent shall have received such other documents
as it shall reasonably request.
3. Arch hereby (i) reaffirms and admits the validity and enforceability of
the Arch Guaranty (as amended by this Amendment) and the other Loan Documents to
which it is a party and all of its obligations thereunder, (ii) represents and
warrants that there exists no Default or Event of Default, and (iii) represents
and warrants that the representations and warranties contained in the Loan
<PAGE>
Documents, including the Arch Guaranty as amended by this Amendment (other than
the representations and warranties made as of a specific date) are true and
correct in all material respects on and as of the date hereof, except to the
extent that such representations and warranties are no longer true or correct as
a result of events, acts, transactions or occurrences after the Restatement
Effective Date which are permitted under the Credit Agreements.
4. This Amendment may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute one agreement. It
shall not be necessary in making proof of this Amendment to produce or account
for more than one counterpart signed by the party to be charged.
5. This Amendment is being delivered in and is intended to be performed in
the State of New York and shall be construed and enforceable in accordance with,
and be governed by, the internal laws of the State of New York without regard to
principles of conflict of laws.
6. Except as amended hereby, the Arch Guaranty shall in all other respects
remain in full force and effect.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
the Arch Guaranty to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
ARCH COMMUNICATIONS, INC.
By:
Name:
Title:
THE BANK OF NEW YORK, as Collateral
Agent
By:
Name:
Title:
ACCEPTED AND AGREED TO:
ARCH PAGING, INC.
By:
Name:
Title:
** CONFIDENTIAL TREATMENT REQUESTED Exhibit 10.36
PREFERRED DISTRIBUTOR AGREEMENT
THIS AGREEMENT effective as of this 1st day of June 1998, by and between NEC
America, Inc., a corporation having a principal place of business at 1555 W.
Walnut Hill Lane, Irving, Texas 75038-3796 (hereinafter referred to as "NEC")
and Arch Communications, a corporation having a principal place of business at
1800 West Park Drive, suite 250, Westborough, MA, 01581(hereinafter referred to
as "DISTRIBUTOR") (collectively hereinafter referred to as the "Parties").
WITNESSETH
WHEREAS, NEC has certain paging products to sell, (hereinafter referred to as
"Paging Products")
WHEREAS, DISTRIBUTOR desires to purchase such Paging Products from NEC;
NOW THEREFORE, in consideration of the undertakings, covenants and premises
herein set forth, the Parties hereto mutually agree as follows:
1. Products, Prices, Quantity.
1.1 The prices for the Paging Products shall be as set forth in Attachment
"A" attached hereto and incorporated herein.
1.2 DISTRIBUTOR agrees to purchase and take delivery of a minimum quantity
of Paging Products over a specified term set forth in ATTACHMENT "A" .
1.3 Alterations to any Paging Products which NEC deems necessary to comply
with specifications, changed safety standards or governmental
regulations, to make the Paging Products non-infringing with respect to
any patent, copyright or other proprietary interest, or to otherwise
improve a Paging Products may be made at any time by NEC without prior
written notice to or consent of DISTRIBUTOR and such altered Paging
Products shall be deemed to be fully conforming.
1.4 This is a non-exclusive Distributor Agreement. NEC reserves the right to
sell any Paging Products to any third party in any manner in which it
sees fit. In addition, DISTIRBUTOR maintains the right to purchase any
similar products from any third party.
1
<PAGE>
2. Term and Termination of the Agreement.
2.1 The period which DISTRIBUTOR may purchase Paging Products under this
Agreement shall commence on the effective date of this Agreement as
written above and shall continue for a period of not less than 14
months.
2.2 Either party may re-evaluate the terms of this Agreement and negotiate
with the other party in an effort to reach a consensus concerning any
desired modifications. Such negotiations may be held once every six
months for the duration of this Agreement. If agreement cannot be
reached concerning modified terms, this agreement may be terminated by
either party upon thirty (30) days written notice to the other party.
2.3 Either party shall have the right to terminate this Agreement if the
other party rejects or fails to perform or observe any of its
obligations hereunder, and such condition is not remedied within thirty
(30) days after written notice is given to the defaulting party.
2.4 Either party shall have the right to terminate this Agreement if the
other party assigns this Agreement, or any of the rights hereunder,
except to a corporate affiliate which assignment is specifically
allowed.
2.5 Termination of this Agreement, howsoever caused, shall not terminate
DISTRIBUTOR's liability to pay for any Paging Products previously
shipped to DISTRIBUTOR.
2.6 Sections 2, 8, 9, 13, 14, and 17 shall survive termination of this
Agreement.
3. Purchase Orders.
3.1 All orders for Paging Products must be accompanied by a purchase order
from DISTRIBUTOR transmitted via facsimile or other mutually acceptable
format or delivered to NEC. Specific purchase orders shall specify the
type and quantity of Paging Products ordered, unit and extended pricing,
as well as desired shipping schedule and ship-to instructions.
Acknowledgment of receipt of purchase orders shall not constitute
acceptance. Any contingencies contained in such purchase orders are not
binding upon NEC.
3.2 DISTRIBUTOR's purchase orders shall be accepted upon NEC's transmission
of a "Sales Acknowledgement" form for the Paging Products. If
DISTIRBUTOR does not object in writing to such Sales Acknowledgment form
within seven (7) days after receipt of such form then the order, as
accepted in the Sales Acknowledgment form, shall be firm.
2
<PAGE>
3.3 DISTRIBUTOR hereby grants NEC, its successors and assigns, a security
interest in all of the Paging Products ordered by DISTRIBUTOR, and the
proceeds of all such Paging Products (including, but not limited to, the
related accounts), and in contracts rights related to any of such Paging
Products, to secure payment of the purchase price of any such Paging
Products. Default in payment of such price shall permit NEC, at its sole
discretion, to declare all of DISTRIBUTOR's obligations owing to NEC to
be immediately due and payable, and in such event NEC shall have all the
rights and remedies of a secured party under the applicable Uniform
Commercial Code. In connection with the security interest granted
herein, NEC is expressly authorized by DISTRIBUTOR, at its sole
discretion and as DISTRIBUTOR's attorney-in-fact, to file any financing
statements necessary under applicable law to perfect this security
interest (without DISTRIBUTOR's signature in states where such filings
are permitted); and DISTRIBUTOR agrees to sign, as debtor, and
immediately return to NEC any such financing statement that NEC may in
its sole discretion choose to submit to DISTRIBUTOR for signature.
4. Shipment.
4.1 All shipments will be made from NEC's designated warehouse. Shipment
will be to a DISTRIBUTOR location designated in the Sales Acknowledgment
form. DISTRIBUTOR shall be responsible for all shipping charges. The
standard method of shipping will be via ground transportation. Requests
for other shipping methods, including expedited shipments will be paid
by DISTRIBUTOR.
4.2 If DISTRIBUTOR requests that any of the Paging Products be drop-shipped
to separate locations, such instructions and authorization must be
submitted to NEC in writing and approved by NEC which approval shall not
be unreasonably withheld.
4.3 Any discrepancies concerning the quantity of Paging Products shipped to
DISTRIBUTOR or drop-shipped for DISTRIBUTOR must be reported to NEC
within fifteen (15) days of delivery.
5. Payment.
5.1 The terms of payment shall be net due sixty (60) days from date of
invoice. NEC shall invoice DISTRIBUTOR for the Paging Products at the
time of shipment.
5.2 DISTRIBUTOR shall be responsible for all taxes, fees, shiping charges or
other charges imposed by any governmental entity arising with respect to
the sales of Paging Products to DISTRIBUTOR. All amounts due NEC
hereunder shall be net of any such charges, except any taxes that may be
based on NEC's net income, for which NEC shall be solely responsible.
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6. Marketing Support.
6.1 Marketing Support shall be as listed in ATTACHMENT "B", attached hereto
and incorporated herein.
7. Price Protection.
7.1 If and when NEC shall reduce the price of particular models of Paging
Products, the DISTRIBUTOR shall be entitled to the benefit of such price
reduction for all units of such Paging Products model which is equal to
those Paging Products purchased by DISTRIBUTOR, the day after the
effective date of price reduction. In addition, NEC reserves the right
to increase the price of any Paging Products upon thirty (30) days
written notice to DISTRIBUTOR.
7.2 Distributor shall receive benefit of such price reduction on all orders
unshiped by NEC at the of such price reduction
8. Warranty, Returns, Service.
8.1 NEC's warranty obligations are stated in ATTACHMENT "D", attached hereto
and incorporated herein.
8.2 THE LIMITED WARRANTIES PROVIDED FOR IN ATTACHMENT D ARE IN LIEU OF ALL
OTHER WARRANTIES AND GUARANTEES, WHETHER EXPRESS OR IMPLIED, STATUTORY
OR OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, NON-INFRINGEMENT OR ARISING FROM A COURSE OR
DEALING, USAGE, OF TRADE PRACTICE TO THE EXTENT ALLOWED BY APPLICABLE
LAW. NEC'S AND ITS SUPPLIER'S ENTIRE LIABILITY, AND ORIGINAL END-USER
PURCHASER'S EXCLUSIVE REMEDY UNDER ANY WARRANTY IS LIMITED SOLELY TO THE
REPAIR OR REPLACEMENT OF THE DEFECTIVE PART OR PRODUCT (IN NEC OR ITS
SERVICE CENTER'S DISCRETION) OR TO ISSUING CREDIT FOR THE DEFECTIVE PART
OR PRODUCT. IF ANY PRODUCT BECOMES DEFECTIVE DURING THE WARRANTY PERIOD,
THE ORIGINAL END-USER PURCHASER SHALL RETURN THE DEFECTIVE PART OR
PRODUCT FOR INSPECTION AND TESTING SUBJECT TO NEC'S STANDARD REPAIR AND
RETURN POLICIES IN EFFECT AT THE TIME OF RETURN. IN NO EVENT SHALL NEC
BE LIABLE FOR ANY DEFECTIVE CONDITION OF SUCH PART OR PRODUCT, IF, IN
NEC'S DISCRETION, INSPECTION AND TESTING DISCLOSE THAT THE DEFECTIVE
CONDITION OF SUCH PART OR PRODUCT WAS CAUSED BY MISUSE, ABUSE, IMPROPER
OR UNAUTHORIZED MAINTENANCE OR REPAIR, ALTERATION, ACCIDENT OR
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NEGLIGENCE IN USE OR DAMAGE CAUSED BY EXCESSIVE TEMPERATURE OR HUMIDITY
OR OTHER IMPROPER ENVIRONMENTAL CONDITIONS, STORAGE, TRANSPORTATION, OR
HANDLING.
8.3 DISTRIBUTOR shall comply with NEC's reasonable procedures related to the
tracking of in-bound returned Paging Products.
9. Limitation of Liability.
9.1 WHETHER OR NOT CAUSED BY NEGLIGENCE, NEITHER PARTY SHALL BE LIABLE FOR
ANY INDIRECT, SPECIAL, CONSEQUENTIAL, PUNITIVE OR INCIDENTIAL DAMAGES,
HOWEVER CAUSED (INCLUDING LATE DELIVERY) EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBLITY OF SUCH DAMAGES.
9.2 EXCEPT AS SPECIFICALLY PROVIDED FOR IN THIS AGREEMENT, ALL LIABILITY OF
NEC UNDER THIS AGREEMENT, UNDER ANY LEGAL OR EQUITABLE THEORY, SHALL BE
LIMITED TO MONEY PAID TO NEC FOR SUCH PRODUCT OR ACCESSORY FOR THE
CELLULAR TELEPHONE PRODUCTS.
10. Force Majeure.
10.1 Neither party shall be liable or deemed to be in fault for any delay or
failure in performance under this Agreement or interruption of service
resulting directly or indirectly from acts of God, civil or military
authority, acts of public enemy, war, accidents, fires, explosions,
earthquakes, floods, the elements, epidemics, strikes, labor disputes,
shortages of fuel, power, suitable parts, materials, labor or
transportation, product shortages however caused, whether in its own
enterprise, or any cause beyond the reasonable control of such party in
the above instances, time for performance shall be extended for the
period of the delay caused; provided, however, that either party may
cancel in writing the undelivered portion of the order if the delay
exceeds sixty (60) days from the shipment date originally confirmed by
NEC.
11. Indemnity for Infringement, Injunction.
11.1 NEC agrees to defend and indemnify DISTRIBUTOR against any claim that
the Paging Products sold by NEC hereunder infringe the intellectual
property right of third parties provided that: (i) Paging Products are
not modified by DISTRIBUTOR or by any other party at the direction of
DISTRIBUTOR; (ii) DISTRIBUTOR notifies NEC in writing within thirty (30)
days of the claim; (iii) NEC has sole control of the defense and all
related settlement and licensing negotiations; and, (iv) DISTRIBUTOR
provides NEC with the assistance, information and authority necessary to
perform NEC's obligations under this Section; provided always that
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<PAGE>
DISTRIBUTOR shall not admit liability of NEC under any circumstances.
Reasonable out-of-pocket expenses incurred by DISTRIBUTOR in providing
such assistance will be reimbursed by NEC. DISTRIBUTOR shall be
permitted to participate in any such defense at its own expense and with
counsel of its choice. In the event that NEC fails or refuses to defend
against any claim or suit, DISTRIBUTOR may do so and NEC agrees to
reimburse DISTRIBUTOR for its documented costs and expenses.
11.2 If the use or sale of any Paging Products furnished hereunder is
enjoined as a result of any suit, NEC at its option and no expense to
DISTRIBUTOR shall: (i) obtain for DISTRIBUTOR the right to use, sell or
re-sell said items; or shall (ii) substitute an equivalent product
reasonably acceptable to DISTRIBUTOR and extend this indemnity thereto;
or of (i) or (ii) cannot be reasonably attained for commercial reasons,
NEC shall accept the return of the Paging Products and reimburse
DISTRIBUTOR the purchase price thereof, less a reasonable charge for
wear and tear.
12. Governing Law.
12.1 The validity, interpretation, and performance of this Agreement shall be
controlled by and construed under the laws of the State of New York,
United States of America, as if performed wholly within the state
without giving effect to the principles of conflict of law. The Parties
specifically disclaim the UN Convention of Contracts for the
International Sale of Goods.
13. Confidentiality.
13.1 Any specifications, drawings, sketches, models, samples, confidential
business information or data, written, oral or otherwise ("Information")
obtained by either party hereunder or in contemplation hereof shall
remain the property of the party originating the information. All such
Information shall be kept confidential and not reproduced or distributed
in any manner without the expressed written permission of the
originating party. All copies of such Information shall be returned upon
request.
13.2 The obligations imposed on either party under Section 14.1 above shall
not apply to information whether or not designated as "Confidential":
(i) which is made public by the disclosing party; (ii) which the
receiving party can reasonably demonstrate is already in the possession
of the receiving party and not subject to an existing agreement of
confidence; (iii) which is received from a third party without
restriction and without breach of this Agreement; (iv) which is
independently developed by the receiving party as evidenced by its
records; (v) which the receiving party is required to disclose pursuant
to a valid order of a court or other governmental body or any political
subdivision thereof, provided, however, that the recipient of the
information shall first have given notice to the disclosing party so
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that the owning party may seek to obtain a protective order requiring
that the information and/or documents so disclosed be used only for the
purposes for which the order was issued.
13.3 The Parties agree that this Agreement (including all Attachments or
Exhibits attached hereto) is confidential and shall not be disclosed to
any third party.
13.4 The obligations in this Section shall survive termination of this
Agreement for five (5) years.
14. Trademarks.
14.1 It is expressly agreed and understood that trademarks, trade names,
insignia, etc. (hereinafter referred to as "Marks") involving the words
"NEC", designated trademarks of NEC, or " " are and shall remain the
exclusive property of NEC and DISTRIBUTOR (as applicable) and that the
other party has and shall have no right to such trademarks and trade
names. All use of Marks involving the words "NEC", designated trademarks
of NEC, or " " (as applicable) in the promotion and sale of goods shall
be deemed to inure only for the benefit of the owner of such Marks.
Neither party without the express written consent of the other, shall
have the right to use any Marks in the sale, lease or advertising of any
products or on any product container, component part, sales, advertising
or promotional materials. Any approved use of the Marks shall be in
accord with such party's policies governing the size, typeface and other
usage requirements.
14.2 If DISTRIBUTOR requests that any of the Paging Products are to be sold
to DISTRIBUTOR bearing any trademark other than the "NEC" trademark or a
designated trademark of NEC, the terms and conditions concerning such
private labeling of the Paging Products shall be subject to the mutual
written agreement of the Parties. DISTRIBUTOR shall indemnify and hold
NEC harmless from any liability, judgments, decrees, costs and expenses,
including reasonable attorney(s) fees incurred by NEC, for suits brought
by any party against NEC related to NEC affixing any trade names, logos,
or trademark(s) on the Paging Products in accordance with any
instructions given by DISTRIBUTOR.
15. Publicity.
15.1.1 DISTRIBUTOR and NEC agree to submit to each other for approval any press
releases and all other publicity matters whenever the other's name is
used in connection with matters pertaining to the relationship
established by this Agreement, and shall not use each other's name in
such matters without prior written approval. Both parties agree not to
unduly restrict the release of such information.
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16. General.
16.1 This Agreement expresses the entire understanding and agreement of the
Parties with reference to the sale of NEC Paging Products to DISTRIBUTOR
and is a complete and exclusive statement of the terms of this
Agreement, and no representations, amendments, or agreements modifying
or supplementing the terms of this Agreement shall be valid unless in
writing, signed by persons authorized to sign agreements on behalf of
each party. NEC will not be bound by terms of DISTRIBUTOR's order. Only
NEC's acknowledgement of such order through transmission of a shipping
schedule shall constitute valid acceptance of DISTRIBUTOR's order. Any
such acceptance is expressly conditioned on assent to the terms hereof
and the exclusion of all other terms. DISTRIBUTOR shall be deemed to
have assented to the terms hereof, whether or not previously received,
upon accepting delivery of anything shipped from NEC. If tender of these
items is deemed an offer, acceptance is expressly limited to the terms
hereof.
16.2 During the term of this Agreement DISTRIBUTOR's purchase of Paging
Products from NEC, shall be subject to and made under the terms and
conditions of this Agreement. The terms and conditions of DISTRIBUTOR's
purchase orders, NEC's acknowledgments or any other writings by either
party which differ from the terms and conditions hereunder shall not be
effective unless specifically accepted in writing by amendment to this
Agreement made separate and apart from said terms and conditions. All
orders are subject to acceptance at NEC's home office in Irving, Texas.
No person shall have the authority to accept any order on behalf of NEC
outside of NEC's Irving, Texas office.
16.3 No waiver by NEC or DISTRIBUTOR of any of the terms, conditions,
covenants or agreements of this Agreement shall be binding unless in
writing and signed by the party to be charged, and no such waiver shall
be deemed or taken as a waiver at any time thereafter of the same or any
other term, condition, covenant or agreement herein contained, nor of
the strict and prompt performance thereof. A waiver by course of
performance to any of the terms and provisions hereunder on one occasion
will not be construed as a waiver for any other occasion.
16.4 If any one or more provision of this Agreement is deemed to be
unenforceable, the Parties hereby express by agreement that the
remainder of this Agreement is nevertheless to be fully enforced and to
be interpreted as valid in every respect except for such unenforceable
provisions.
16.5 The Parties mutually agree that the headings and captions contained in
this Agreement are inserted for convenience or reference only, and are
not to be deemed part of, or to be used in interpreting, this Agreement.
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IN WITNESS WHEREOF, this Agreement was entered into as of the day and
year first written above.
ATTACHMENTS: Paging Products and Pricing (Attachment A)
Marketing Support (Attachment B)
Limited Warranty (Attachment C)
Coop Guidelines (Attachment D)
ACCEPTED: ACCEPTED:
ARCH COMMUNICATIONS NEC AMERICA, INC.
BY: /s/ Lyndon Daniels BY: /s/ N. Norose
NAME: Lyndon Daniels NAME: N. Norose
TITLE: President TITLE: General Manager
DATE: May 27, 1998 DATE: May 28, 1998
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** CONFIDENTIAL TREATMENT REQUESTED
ATTACHMENT A
QUARTERLY "MAY"
CONTRACT ACHIEVEMENT SPECIAL
PRODUCT PRICE INCENTIVE INCENTIVE DISCOUNT
(per unit) (per unit) (per unit) (per unit)
Message Maker $ **
Exec $ ** $ **
Companion* $ ** $ **
VUE* $ ** $ ** $ **
Contract Incentive: DISTRIBUTOR shall purchase and take delivery of the
following quantities of Paging Products:
1. ** NEC Alpha Paging Products Monthly, (VUE/Companion)
(Minimum ** VUEs Monthly)
The contract incentive, listed above, shall be made available to DISTRIBUTOR for
meeting these minimum quantity commitments. Contract Incentive is deducted from
invoice.
Quarterly Achievement Incentive will be deducted from invoice. DISTRIBUTOR
agrees to reimburse in full any Quarterly Achievement Incentive monies back to
NEC within 15 days of notification for each quarter that DISTRIBUTOR fails to
take delivery of the minimum committed quantity of ** alphas (VUE/Companion)
May Special Discount will be deducted from invoice. In order to teceive the May
Special Discount, DISTRIBUTOR must place firm purchase orders for the Exec or
Companion during the month of May, 1998. Product must ship prior to December 31,
1998.
Notwithstanding the above, from the effective date of this Agreement, NEC will
extend to DISTRIBUTOR all Contract Incentives and Quarterly Achievement
Incentives without regard to minimum quantity commitments for a period of (2)
two months. All minimum quantity commitments shall become effective as of the
third month of the term of this agreement.
*Includes 2 year warranty = labor & materials for two years.
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ATTACHMENT B
MARKETING SUPPORT:
1. NEC agrees to make available to DISTRIBUTOR marketing co-op funds based
upon two (2%) of the purchase price of the Paging Products. In
calculating the amount of co-op funds available, any other credits,
discounts or rebates extended to DISTRIBUTOR shall first be deducted
from the purchase price before calculating the two percent. Co-op funds
will be posted to the DISTRIBUTOR account monthly by the tenth (10th)
day of each month for purchases of Paging Products in the prior month.
DISTRIBUTOR shall use the co-op funds to promote the "NEC" brand in
targeted markets selected from time to time by DISTRIBUTOR, in
accordance with NEC's co-op advertising program.
2. NEC will provide each Distributor location with sales and product
training on an on-going basis, at no cost to Distributor. This will
include, but not be limited to, training materials, prodcut
demonstrations, and presentation by the NMI sales and training staff.
3. Due to substantial pricing considerations to Distributor, Distributor
will not be allowed to participate in sales promotional programs as
offered by NEC to customers from time to time, nor receive any
addidtional funding from NEC for sales activities. Should a promotion
create a lower net unit price than Distributor's net price, an exception
can be granted should both parties agree.
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ATTACHMENT C
1. What Product May Be Covered By This Warranty?
The following products (the "Product" or the "Products") purchased through
an NEC America, Inc. ("NECAM"), Mobile Radio Division Authorized Dealer
(the "Dealer") in the United States may be covered by this warranty:
MESSAGE MAKER
VUE
EXEC
COMPANION SP
2. What Does This Warranty Cover?
NECAM warrants to the original end user purchaser of the Products ("You")
that the Products will conform to the applicable published specifications
in effect at the time of shipment from NECAM for the Dealer, and that the
Products will be free from defects in materials or workmanship under normal
use and service during the warranty period described in Paragraph 3.
3. How Long Does The Coverage Last?
The warranty period will begin on the date You purchased the Product. Dated
proof of purchase (e.g. cash register receipt) is to accompany and Product
returned for warranty service. However, if proof of purchase is not
available, the warranty period begins on the date the Product is shipped
from NECAM to the Dealer. The warranty periods for the Products, excluding
any battery cell or assembly, is as follows.
One (1) Year Parts/One Year Labor
The warranty period for any battery cell or assembly is ninety (90) days.
Any products repaired or replaced under the terms of this warranty are
covered under warranty for the remainder of the original warranty period of
ninety (90) days if there are less than ninety (90) days remaining in the
original warranty period.
4. What Will NECAM Do If The Product Becomes Defective In Materials Or
Workmanship During The Warranty Period?
If any Product covered under this warranty becomes defective in materials
or workmanship during the applicable warranty period, NECAM will, at its
option, either repair the defective Product without charge for parts and
labor, or provide a replacement in exchange for the defective Product.
5. What Is Not Covered By This Warranty?
(a)This warranty does not extent to (i) Products which have been subjected
to misuse, accident, physical damage, improper installation, abnormal
operation or handling, neglect, inundation, fire, water or other liquid
intrusion; or (ii) Products which have been repaired, altered, or
modified by anyone other than an authorized service representative of
NECAM; or (iii) defects caused by failure of components, parts, or
accessories not compatible with the warranted Product; or (iv) Products
whose warranty/quality stickers, product serial number plates or
electronic serial numbers have been removed, altered, or rendered
illegible; or (v) accessory items such as antennae, cables, curl cord,
cases, etc.; or (vi) Products shipped to NECAM for repair from outside
the United States.
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ATTACHMENT D
NEC AMERICA, INC.
Communications Terminals Group
1998 Cooperative Marketing Program
Guidelines and Procedures
--------------------------------------------------------------------------
A. PURPOSE
The objective of the NEC America, Inc.'s Communications Terminals Group ("NEC")
Cooperative Marketing Program ("Co-op") is to effectively and consistently
promote the sale of NEC wireless products through various advertising and
promotional programs.
B. ELIGIBILITY
The Cooperative Marketing Program is available to authorized NEC customers* who
purchase wireless messaging or cellular products and whose advertising and
marketing plans comply with the requirements of the Program, and are approved in
accordance with the Program.
Co-op eligibility may be denied where special sales conditions or other
promotions prevail.
C. HOW A CO-OP FUND IS ACCRUED
A co-op account is set up for each NEC customer who is eligible and has an
established NEC account number.
1. Funds are accrued on a monthly basis in the co-op account at 2% of the net
invoiced purchase price of new wireless products, net of all allowances
shown on the invoice.
2. No funds are accrued for the purchase of accessories, spare parts, test
equipment, or custom or reconditioned products.
3. Accrual is based on net unit shipments, as recorded by NEC management
reports.
* Authorized NEC customers include carriers, distributors, dealers and other
groups that buy products directly from NEC.
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D. USE OF CO-OP FUNDS
1. Co-op marketing funds can be used for a variety of advertising and
promotional activities. Reimbursement rates vary depending upon how they
are used. The following charts reflect these variations.
<TABLE>
<CAPTION>
- --------------------------------------------------- ----------------------------------- -------------------------------------
CATEGORY 100% 50%
REIMBURSEMENT REIMBURSEMENT
- --------------------------------------------------- ----------------------------------- -------------------------------------
- --------------------------------------------------- ----------------------------------- -------------------------------------
<S> <C> <C>
1. Advertising: Net Media costs less Ads produced and supplied by NEC Ads produced by customer complying
taxes, discounts, rebates and commissions with NEC guidelines. Note: Ad
for; reimbursement may be prorated based
o Newspapers on actual amount of NEC brand name
o Magazines and product exposure.
o Radio
o Television
o Yellow Pages
o Outdoor (Billboards, bus-boards)
- --------------------------------------------------- ----------------------------------- -------------------------------------
- --------------------------------------------------- ----------------------------------- -------------------------------------
2. Collateral and Merchandising Items Items produced and supplied by NEC Items produced by customer
o Brochures complying with NEC guidelines.
o Specification Sheets Note: Item reimbursement may be
o Posters prorated based on actual amount of
o Banners NEC brand name and product exposure.
o Displays
o Catalogs
o Display (Dummies) Products
o Merchandising Kits
- --------------------------------------------------- ----------------------------------- -------------------------------------
- --------------------------------------------------- ----------------------------------- -------------------------------------
3. Premium Incentive Items Items produced and supplied by NEC Items produced by customer and
complying with NEC guidelines.
- --------------------------------------------------- ----------------------------------- -------------------------------------
- --------------------------------------------------- ----------------------------------- -------------------------------------
4. Sales Promotions and Contests Promotions produced and supplied Promotions produced by customer may
by NEC receive up to 50%, depending upon
amount of NEC exposure.
Pre-approval required.
- --------------------------------------------------- ----------------------------------- -------------------------------------
- --------------------------------------------------- ----------------------------------- -------------------------------------
5. Special Events Not available Special events sponsored by
o Open House customer may receive up to 50%,
o Sales Training depending upon amount of NEC
o Store Openings exposure. Pre-approval required.
---------------------
- --------------------------------------------------- ----------------------------------- -------------------------------------
- --------------------------------------------------- ----------------------------------- -------------------------------------
6. Trade Shows Not available Up to 50% of floor space fees,
depending upon amount of NEC
exposure. (Maximum of $10,000 per
year). Pre-approval required.
---------------------
- --------------------------------------------------- ----------------------------------- -------------------------------------
- --------------------------------------------------- ----------------------------------- -------------------------------------
7. Motorsports When used with NEC Motor Sports Not Available
programs only.
- --------------------------------------------------- ----------------------------------- -------------------------------------
- --------------------------------------------------- ----------------------------------- -------------------------------------
8. Internet (Worldwide Web) Not available Up to 50%, depending upon amount of
NEC exposure. (Maximum of $10,000
per year). Pre-approval required.
----------------------
- --------------------------------------------------- ----------------------------------- -------------------------------------
* Note: Ads or materials featuring competitive products receive
proportionately reduced co-op reimbursement depending on number of
other manufacturers featured.
</TABLE>
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E. NEC GENERAL REQUIREMENTS FOR REIMBURSEMENT
The NEC logo must be correctly represented in its logo font style and utilized
in all applicable mediums. When a NEC product photograph is used, the NEC name
or logo must also appear in the advertisement or printed material within the
body copy or near the product photograph. Logo sheets, specifications, and
photographs are available through the Sales Promotions Group by calling
1.800.421.2141 and selecting the appropriate option.
If you are requesting 50% reimbursement, prior approval must be given for your
advertising or program. This approval must be given prior to the actual
production or airdate of the advertising/program/item. Upon receipt of written
approval, you may file claims in the usual manner.
To receive prior approval, please mail or send via facsimile, all program
materials, photographs, media schedules and any other applicable items to the
attention of:
NEC America, Inc.
Sales Promotions Group
1555 W. Walnut Hill Lane
Irving, TX 75038-3796
(Toll-free) 1.800.431.2141
(Fax) 972.751.7409
1. 50% Co-op -- Advertising:
o Feature the newest photograph or illustration of an NEC wireless
product; minimum size (height) is 1.5 inches depending on overall size
of the advertisement. All product logos must be shown and visible.
o Show the NEC name in the copy or near the product. The minimum font
size for the NEC name outside of the body copy is 12pt.
o Include product brand name near the product. Examples:
- DigitalTalk(TM) 2000
- MessageMaker Vue(TM).
2. 50% Co-op -- Collateral, Merchandising, and Premium Incentive Items:
o Feature the newest photograph or illustration of an NEC wireless
product.
o For premium items, the NEC name, logo or product brand name featured
on the item is sufficient.
o When copy is applicable, such as with collateral or on merchandising,
list the NEC name and/or product brand name.
3. 50% Co-op -- Radio
o 30 Second Radio spots produced by YOU must include two mentions of the
NEC name. The mentions can be noted in relationship to NEC products.
o 60 Second Radio spots produced by YOU must include two mentions of the
NEC name and/or product brand name.
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4. 50% Co-op -- TV
o 30 Second TV spots produced by YOU must include two mentions of the
NEC name and/or product brand name. The mentions can be noted in
relationship to NEC products.
o A close-up of a NEC product must be featured once during the airing of
the spot - the logo must be readable.
o 60 Second TV spots produced by YOU must include two mentions of the
NEC name and/or product brand name plus the tagline: Just Imagine NEC
Multimedia.
o A close-up of a NEC product must be featured once during the airing of
the spot - the logo must be readable.
o Minimum point size for logo, name, or tagline is 26pt.
5. Up to 50% Co-op -- Internet
o Banner and web site advertising space must include the NEC logo and/or
product brand name, and actual product photographs or illustrations.
o Color product photographs or illustrations are mandatory unless the
web site features only a black and white format.
F. FUND TERM
The fund is accrued on a calendar year basis; January 1st through December 31st.
Claims can be filed any time during the accrual period but no later than March
15th following previous calendar year.
-------------------- ---------------------- -------------------------------
Co-op Fund Advertisement Must Be Claims Must Be
Accrual Period Run Between Filed No Later Than
-------------------- ---------------------- -------------------------------
Jan. 1st - Dec. 31st Jan. 1st - Dec. 31st Mar. 15th, After Calendar Year
-------------------- ---------------------- -------------------------------
* NOTE: ALL UNCLAIMED FUNDS WILL BE AUTOMATICALLY FORFEITED ON THE MARCH 15th
FILING DEADLINE.
G. CLAIM VERIFICATION
To file a Claim for reimbursement of media placements and print production, a
NEC Cooperative Advertising Claim Form (CCF01) must be completed and sent along
with the proper documentation as specified by media type. Without a CCFO1, the
claim will not be processed.
The following items are required with each claim filed:
1. Advertising
o Newspaper/Magazine (NEC pays space cost only.)
- Original tear sheet for each date the ad appeared (photocopies are not
acceptable) showing the publication name and date.
- Copy of the paid invoice indicating cost of the space, less all
discounts and rebates, and the frequency contract if applicable.
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o Yellow Pages (NEC pays space cost only).
- The original tear sheet indicating the publication name and date
(photocopies will not be accepted). The tear sheet is needed for
monthly or annual reimbursement.
- If you are claiming annual reimbursement, include a copy of the paid
invoice that states the directory name, month published and annual
cost.
- If billed monthly by the telephone company, file reimbursement claims
by:
1). Forwarding a copy of the monthly paid invoice to NEC Customer
Support Group.
2). Waiting until all 12 monthly invoices are collected, then filing
one annual claim.
3). Receive annual reimbursement by sending a copy of the contract
showing the directory name, date published, size of ad and cost
along with the first month's invoice.
o Radio/Television (NEC pays time cost only.)
- Copy of the paid invoice with length of commercial, date(s), number of
spots aired, frequency rate, cost per spot, and total cost.
- Copy of radio/TV script with notarized ANA/RAB documentation for radio
or ANA/TVB documentation for TV with original signature of a station
official.
- Include a copy of the script with NEC reference used (or a storyboard
for TV), or the script must have video detail notations referencing
what is actually being shown during the narrative.
o Outdoor Billboards (NEC pays space cost only.)
- Copy of the paid invoice indicating where, when, and duration of time
the board was posted.
- Actual photo of the billboard or bus-board.
2. Collateral and Premium Incentive Items produced by the Customer
o Pre-approval required.
o Original sample of item.
o Copy of paid invoice indicating net cost, less any discounts, rebates
and commissions.
3. Sales Promotions and Contest produced by the Customer
o Pre-approval required.
o Complete promotion or sales contest description, including rules and
structure for awarding prizes.
o Copy of paid invoice for promotion and/or prizes, indicating net cost,
less any discounts, rebates and commissions.
4. Special Events and Trade Shows
o Pre-approval required.
o Complete event description, including dates, NEC products displayed
and attendance.
o Photographs or other proof of performance reflecting the amount of NEC
product exposure.
o Copies of paid invoices indicating net cost, less any discounts,
rebates and commissions
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5. Motorsports
o Photographs of company logo on NEC program car.
o Copy of paid invoice indicating net cost, less any discounts, rebates
and commissions.
6. Internet
o Copy of advertisement with website address.
o Copy of paid invoice indicating net cost, less any discounts, rebates
and commissions.
H. TO FILE A CLAIM FOR FUNDS
To file a claim, YOU must fill out an NEC Cooperative Marketing Claim Form
(CCFO1) and send it with all the proper documentation as described in "Section
H". The form and documentation must be sent to:
NEC America, Inc.
Co-op Marketing Program
Customer Support Group
1555 W. Walnut Hill Lane
Irving, TX 75038-3796
Literature and promotional items must be ordered on a Literature/Promotional
Order Form (LOF01), indicating on the form that the payment is to be made by
using available co-op funds.
When claim amounts exceed an accrual fund balance, the customer will be
contacted by NEC to determine which of two (2) available options should be used:
Option 1: Delay the reimbursement until enough funds have been accrued to cover
the claim or...
Option 2: Receive partial credit only up to the available amount in the accrued
fund. However, if this option is chosen, the balance of the claim
cannot be resubmitted at a later date for reimbursement of the
remaining amount.
* NOTE: PAYMENTS WILL NOT BE MADE THAT EXCEED THE CUSTOMER'S ACCOUNT BALANCE.
--------------------------------
I. OTHER SPECIAL TERMS AND CONDITIONS
1. NEC will only pay the full allowance on advertisements or promotions that
feature NEC products exclusively. No competitive products may be featured
to obtain the full allowance.
2. If it is not exclusively NEC, NEC reserves the right to prorate the
reimbursement based on the percentage of space dedicated to NEC and its
wireless products.
18
<PAGE>
3. NEC reserves the right to limit the quantity of literature and promotional
items ordered to a maximum of 25% of the available funds.
4. Items in a foreign language are acceptable; however, an English translation
is required in order to process the claim.
5. NEC reserves the right to suspend payment of claims if a customer's
accounts receivable is not current. Only NEC may choose to apply the fund
as a credit to the customer's account.
6. NEC reserves the right to change the amount of the accrual and the eligible
products and options at any time without prior notice.
7. NEC reserves the right to terminate the co-op program at any time upon
thirty (30) days prior written notice. Sixty (60) days after the date of
discontinuance, all unexpended balances will be canceled.
8. All advertising must be in compliance with local, state and federal laws
and must be "in good taste".
9. All claims in the advertising text regarding NEC products must be truthful.
Any false or misleading representations will result in a rejected co-op
claim.
10. No third-party checks will be issued for any type of advertising. NEC will
not accept direct vendor billing.
11. Exceptions to this program can be granted by the Director of Marketing, as
long as it maintains the intent of the program and is granted in writing.
12. ALL state, local, or federal taxes that may arise from the use of funds are
the responsibility of the customers.
13. The NEC logo and/or the name NEC in Helvetica bold typeface may not be
used. The use of the NEC logo and name must conform to NEC Corporate
Guidelines. (Camera-ready art is available from NEC).
14. All claims must be submitted using the NEC claim form, and comply with all
the guidelines contained herein, or they will be returned, unpaid.
15. The cost of local preparation and production are not reimbursable under the
NEC Co-op Marketing Program.
16. All claims must be postmarked within 60 days from the date the advertising
or promotions are completed or appear within their designated medium.
19
EXHIBIT 21.1
LIST OF SUBSIDIARIES
SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS AS
- ------------------------------------- ------------------------ -----------------
Arch Canada Inc. Ontario, Canada
Arch Communications Enterprises LLC Delaware Arch Paging
Arch Communications, Inc. Delaware
Arch Connecticut Valley, Inc. Massachusetts Arch Paging
Arch Paging, Inc. Delaware Arch Paging
Benbow Investments, Inc. Delaware
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-97072, 33-97074, 33-87940, 333-07333,
333-26759 and 333-56109.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 17, 1999
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